Campus Units

Economics

Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

1-4-2020

Journal or Book Title

Small Business Economics

DOI

10.1007/s11187-019-00288-w

Abstract

The roles of selection and endogeneity in measured risk preferences are illustrated using the correlation between risk attitudes and firm survival. Selection bias occurs when risk attitudes are elicited only from current entrepreneurs so that the risk attitudes of unsuccessful entrepreneurs are excluded from the analysis. Risk attitudes measured after agents enter entrepreneurship will endogenously reflect business success. Data on entrepreneurs from the National Longitudinal Survey of Youth 1979 and the Panel Study of Income Dynamics shows that when risk attitudes are measured subject to selection and endogeneity, mixed or even positive correlations between risk acceptance and the probability of firm exit occur. However, firm exits fall monotonically with willingness to accept risk when risk preference measures are not subject to selection or endogeneity related to business success.

JEL Classification

C18, D81, L26

Comments

This is a manuscript of an article published as Cho, I., Orazem, P.F. How endogenous risk preferences and sample selection affect analysis of firm survival. Small Bus Econ (2020). doi: 10.1007/s11187-019-00288-w. Posted with permission.

Copyright Owner

Springer Science+Business Media, LLC, part of Springer Nature

Language

en

File Format

application/pdf

Published Version

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