Aspiring to Succeed: A Model of Entrepreneurship and Fear of Failure

36 Pages Posted: 11 Jan 2015 Last revised: 31 Jan 2015

See all articles by John Morgan

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group

Dana Sisak

Erasmus University Rotterdam (EUR) - Department of Economics; Tinbergen Institute

Date Written: January 9, 2015

Abstract

Fear of failure can dominate the choices of individuals. We model its role in the decision to become an entrepreneur and subsequent investments made in pursuit of success using the framework of loss aversion. We show that when an individual's threshold for success is sufficiently high, fear of failure motivates additional investment. When the threshold for success is equal to the foregone outside option, on the other hand, fear of failure is always de-motivating. Finally, regardless of the success threshold, fear of failure is negatively associated with entry into entrepreneurship. Our findings highlight the importance of the interaction between the degree of fear of failure and the aspirations of the would-be entrepreneur.

Keywords: Entrepreneurship, Fear of Failure, Loss Aversion, Aspiration Levels, Contests

JEL Classification: L26, M20, C70

Suggested Citation

Morgan, John and Sisak, Dana, Aspiring to Succeed: A Model of Entrepreneurship and Fear of Failure (January 9, 2015). Available at SSRN: https://ssrn.com/abstract=2547727 or http://dx.doi.org/10.2139/ssrn.2547727

John Morgan (Contact Author)

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-2669 (Phone)
810-885-5959 (Fax)

HOME PAGE: http://faculty.haas.berkeley.edu/rjmorgan/

Dana Sisak

Erasmus University Rotterdam (EUR) - Department of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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