Authors	Caliendo, M., Fossen, F. and Kritikos, A.S.
Year	2009
Reference	Small Business Economics, 32(2), 153-167
Keywords	Risk Attitudes, Entrepreneurship, Self-Employment.
JEL-Classification	C25, H31, J68
Presentations	2007 EALE in Oslo
Press Coverage	Handelsblatt, December 11, 2006
Download	IZA Discussion Paper No. 2168 from June 2006: PDF
Abstract	The influence of risk aversion on the decision to become self-employed is a much discussed topic in the entrepreneurial literature. Conventional wisdom asserts that the role model of an entrepreneur requires to make risky decisions in uncertain environments and hence that more risk-averse individuals are less likely to become an entrepreneur. Empirical tests of this assumption are scarce however, mainly because reliable measures for risk-aversion are not available. We base our analysis on the most recent waves of the German Socio-Economic Panel (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 the decision of starting a business is influenced by objectively measurable risk attitudes at the time when this decision is made. Our results show that in general individuals with lower risk aversion are more likely to become self-employed. Sensitivity analysis reveals, however, that this is true only for people coming out of regular employment, whereas for individuals coming out of unemployment or inactivity risk attitudes do not seem to play a role in the decision process.