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Overoptimistic Entrepreneurs: Predicting Wellbeing Consequences of Self-Employment

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  • Odermatt, Reto

    (University of Basel)

  • Powdthavee, Nattavudh

    (Nanyang Technological University, Singapore)

  • Stutzer, Alois

    (University of Basel)

Abstract

The formation of expectations is a fundamental part of the process when people decide about engaging in an entrepreneurial venture. We evaluate the accuracy of newly self-employed people's predictions of their overall future wellbeing. Based on individual panel data for Germany, we find that they are overly optimistic when we compare their predicted life satisfaction with their actual life satisfaction five years later on. This overoptimism also holds for those entrepreneurs who successfully remain in business for at least five years. A possible reason might be that they underestimate the heavy workload reflected in higher working hours than desired and the drop in leisure satisfaction.

Suggested Citation

  • Odermatt, Reto & Powdthavee, Nattavudh & Stutzer, Alois, 2017. "Overoptimistic Entrepreneurs: Predicting Wellbeing Consequences of Self-Employment," IZA Discussion Papers 11098, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp11098
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    More about this item

    Keywords

    projection bias; life satisfaction; overoptimism; adaptation; wellbeing; self-employed;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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