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The Effects of Risk Aversion and Age on Investments in New Firms

Author

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  • Forsfält, Tomas

    (Dept. of Economics, Stockholm University)

Abstract

How does the age of risk-averse individuals affect investments in private projects? This question is analyzed under the assumption that such individuals have to invest a large fraction of their personal wealth in order to establish a new firm. Thresholds conditional on age that trigger a switch from one asset to another are derived in a continuous-time portfolio choice model with zero-or -one choices. As the investor gets older - and depending on random events - not only wealth, but also the thresholds, might increase. Thus, there are two counteracting effects on the likelihood of becoming an entrepreneur.

Suggested Citation

  • Forsfält, Tomas, 1999. "The Effects of Risk Aversion and Age on Investments in New Firms," Research Papers in Economics 1999:18, Stockholm University, Department of Economics.
    • Handle: RePEc:hhs:sunrpe:1999_0018
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    Cited by:

    1. Helena Persson, 2004. "The Survival and Growth of New Establishments in Sweden, 1987-1995," Small Business Economics, Springer, vol. 23(5), pages 423-440, October.

    More about this item

    Keywords

    entrepreneurs; portfolio choice; either-or; horizon; risk aversion;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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