Risk aversion, downside risk aversion, and the transition to entrepreneurship

In this paper, we discuss the transition from secure employment to risky self-employment (entrepreneurship) caused by a small increase in wealth. Building on the apportioning risk literature, we prove that the transition from secure employment to risky entrepreneurship is based on a measure of the d...

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Bibliographic Details
Published inTheory and decision Vol. 91; no. 1; pp. 123 - 133
Main Authors Bonilla, Claudio A., Vergara, Marcos
Format Journal Article
LanguageEnglish
Published New York Springer US 01.07.2021
Springer Nature B.V
Subjects
Behavior
Behavioral/Experimental Economics
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Employment
Entrepreneurs
Entrepreneurship
Expected utility
Expected values
Finance
Game Theory
Insurance
Laboratories
Lotteries
Management
Operations Research/Decision Theory
Production functions
Random variables
Risk
Risk aversion
Self employment
Social and Behav. Sciences
Statistics for Business
Utility functions
Wealth
Apportioning risk
Entrepreneurship
Downside risk aversion
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Summary:In this paper, we discuss the transition from secure employment to risky self-employment (entrepreneurship) caused by a small increase in wealth. Building on the apportioning risk literature, we prove that the transition from secure employment to risky entrepreneurship is based on a measure of the difference between the strength of downside risk aversion and the strength of risk aversion. This result highlights the idea that using the behavioral approach of risky lotteries to study entrepreneurship can produce different results from the traditional economic theory of entrepreneurship, which can have policy implications that must be considered with caution.
ISSN:0040-5833
1573-7187
DOI:10.1007/s11238-020-09786-w