WP 2014-07 Risk and Time Preferences of Entrepreneurs: Evidence from a Danish Field Experiment
Published in 2014 in Theory & Decision, Volume 77, Issue 3.
ABSTRACT: To understand how small business entrepreneurs respond to government policy one has to know their risk and time preferences. Are they risk averse, or have high discount rates, such that they are hard to motivate? We have conducted a set of field experiments in Denmark that will allow a direct characterization of small business entrepreneurs in terms of these traits. We build on experimental tasks that are well established in the literature. The results do not suggest that small business entrepreneurs are more or less risk averse than the general population under the assumption of EUT. However, we generally find an S-shaped probability weighting function for both small business entrepreneurs and non-entrepreneurs, with entrepreneurs being more optimistic about the chance of occurrence for the best outcome in lotteries with real monetary outcomes. The results also point to a significant differences in individual discount rates between entrepreneurs and non-entrepreneurs: entrepreneurs are willing to wait longer for certain rewards than the general population.