Risk Attitudes of Nascent Entrepreneurs:New Evidence from anExperimentally-Validated Survey

The influence of risk aversion on the decision to become self-employed is a much discussedtopic in the entrepreneurial literature. Conventional wisdom asserts that the role model of anentrepreneur requires to make risky decisions in uncertain environments and hence thatmore risk-averse individuals are less likely to become an entrepreneur. Empirical tests of thisassumption are scarce however, mainly because reliable measures for risk-aversion are notavailable. We base our analysis on the most recent waves of the German Socio-EconomicPanel (SOEP) which allow us to use experimentally-validated measures of risk attitudes.Most importantly and in contrast to previous research, we are able to examine whether thedecision of starting a business is influenced by objectively measurable risk attitudes at thetime when this decision is made. Our results show that in general individuals with lower riskaversion are more likely to become self-employed. Sensitivity analysis reveals, however, thatthis is true only for people coming out of regular employment, whereas for individuals comingout of unemployment or inactivity risk attitudes do not seem to play a role in the decisionprocess....