Overoptimistic Entrepreneurs: Predicting Wellbeing Consequences of Self-Employment

37 Pages Posted: 23 Oct 2017

See all articles by Reto Odermatt

Reto Odermatt

University of Basel

Nattavudh Powdthavee

University of Warwick

Alois Stutzer

University of Basel - Faculty of Business and Economics; IZA Institute of Labor Economics

Abstract

The formation of expectations is a fundamental part of the process when people decide about engaging in an entrepreneurial venture. We evaluate the accuracy of newly self-employed people's predictions of their overall future wellbeing. Based on individual panel data for Germany, we find that they are overly optimistic when we compare their predicted life satisfaction with their actual life satisfaction five years later on. This overoptimism also holds for those entrepreneurs who successfully remain in business for at least five years. A possible reason might be that they underestimate the heavy workload reflected in higher working hours than desired and the drop in leisure satisfaction.

Keywords: adaptation, overoptimism, life satisfaction, projection bias, wellbeing, self-employed

JEL Classification: D83, D91, J20, I31

Suggested Citation

Odermatt, Reto and Powdthavee, Nattavudh and Stutzer, Alois, Overoptimistic Entrepreneurs: Predicting Wellbeing Consequences of Self-Employment. IZA Discussion Paper No. 11098. Available at SSRN: https://ssrn.com/abstract=3056636

Reto Odermatt (Contact Author)

University of Basel

Nattavudh Powdthavee

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom
+44 (0)2476 528240 (Phone)

Alois Stutzer

University of Basel - Faculty of Business and Economics ( email )

Peter Merian-Weg 6
4002 Basel
Switzerland
0041 61 267 3361 (Phone)
0041 61 267 3340 (Fax)

HOME PAGE: http://www.wwz.unibas.ch/stutzer/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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