The Effects of Experience on Entrepreneurial Optimism and Uncertainty

24 Pages Posted: 8 May 2006

See all articles by Stuart Fraser

Stuart Fraser

University of Warwick Business School

F. GREENE

University of Warwick Business School

Abstract

This paper develops an occupational choice model in which entrepreneurs, who are initially uncertain about their true talent, learn from experience. As a consequence, both optimistic bias in talent beliefs and uncertainty diminish with experience. The model gives rise naturally to a heteroscedastic probit estimator of occupational choices, in contrast to the commonly used homoscedastic estimator. The model is applied to British data on self-employment and optimism for the period 1984-99. The empirical analysis supports the main propositions of the model: principally, entrepreneurs are found to be more optimistic than employees, and both optimism and uncertainty diminish with experience.

Suggested Citation

Fraser, Stuart and GREENE, F., The Effects of Experience on Entrepreneurial Optimism and Uncertainty. Economica, Vol. 73, No. 290, pp. 169-192, May 2006. Available at SSRN: https://ssrn.com/abstract=896817 or http://dx.doi.org/10.1111/j.1468-0335.2006.00488.x

Stuart Fraser (Contact Author)

University of Warwick Business School ( email )

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F. GREENE

University of Warwick Business School ( email )

Room B0.24
Coventry CV4 7AL
United Kingdom
+44 0 24 7652 2233 (Phone)

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