Risk, uncertainty, and entrepreneurship: Evidence from a lab-in-the-field experiment.

Koudstaal, M., Sloof, R., & Van Praag, M. (2015). Management Science, 62(10), 2897-2915.

Topics: Entrepreneurship, Risk aversion

Year: 2015

Country: Netherlands


The authors seek to understand entrepreneurs’ distinctive behavioural features towards risk and uncertainty. They find that entrepreneurs are “unique in their lower degree of loss aversion” (“preferring avoiding losses over acquiring gains”), and not in their risk aversion (“willingness to sacrifice expected payoffs to circumvent taking risks”) or ambiguity aversion (“preference for risks with known probabilities over and above risks with unknown probabilities”). 

Key takeaway: The only remarkable and significant behavioural feature that distinguishes entrepreneurs from managers is loss aversion.


Common wisdom and economic theory predict that entrepreneurs are more willing to be risk taking and are less averse to uncertainty, but empirical evidence is mixed; which raises the question of whether entrepreneurs’ have a truly distinct preference in that they are less averse to risk. 


To better understand entrepreneurs’ distinct behavioural features and the mechanisms behind the different results, the authors perform a large “lab-in-the-field” experiment with a sample of 2,288 respondents, comparing 910 entrepreneurs to two control groups, managers (397) and employees (981) in the Netherlands. They use a survey-based as well as an experimental risk measure, and they also measure loss aversion and ambiguity aversion. 


An ordered probit regression is run for the four behavioural variables for entrepreneurs, managers and employees as dependent variables. They test the robustness of the results by using stricter definitions of entrepreneurs and managers. They then conduct an additional experience on a new sample, with alternative measures of loss aversion and risk aversion. 


The results “indicate that entrepreneurs perceive themselves as less risk averse than managers and employees”. However, when employing alternative measures, the differences are less pronounced. “Entrepreneurs are only found to be unique in their lower degree of loss aversion, and not in their risk or ambiguity aversion”. The robustness checks and the additional experience confirm the finding that the only notable and significant behavioural characteristic that distinguishes entrepreneurs from managers is loss aversion. 

The results could be explained by the correlation between risk attitude and both risk aversion and loss aversion. Which prompted the authors to suggest a larger definition of risk that “captures this unique characteristic of entrepreneurs: their willingness to risk losses”. 

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