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No 1101:
Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics

Thomas Astebro, Holger Herz, Ramana Nanda and Roberto Weber

Abstract: In this article, we critically evaluate what the existing research shows regarding the individual determinants of entrepreneurship. We begin by documenting a set of facts that seem to pose a challenge for interpretations of entrepreneurship based on the standard expected utility framework. Drawing on research in behavioral economics we then review three sets of possible interpretations — risk aversion, overconfidence, and non-pecuniary, taste-based factors — for understanding the empirical facts related to the entry into, and persistence in entrepreneurship. The central thesis of this article is that while all these candidate explanations have merit and can account for some aspects of the facts above, there is little evidence of a “smoking gun” that can completely account for all the puzzling patterns we observe.

Keywords: entrepreneurship; risk aversion; overconfidence; taste; (follow links to similar papers)

JEL-Codes: L26; (follow links to similar papers)

22 pages, October 21, 2015

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