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Author: Cho, In Soo
Resulting in 2 citations.
1. Cho, In Soo
Four Essays on Risk Preferences, Entrepreneurship, Earnings, Occupations, and Gender
Ph.D. Dissertation, Iowa State University, 2012
Cohort(s): NLSY79
Publisher: ProQuest Dissertations & Theses (PQDT)
Keyword(s): Attitudes; Earnings; Entrepreneurship; Gender Differences; Occupations; Risk-Taking; Work Hours

Permission to reprint the abstract has not been received from the publisher.

Chapter 2. This chapter examines the extent to which gender differences in risk aversion explain why women have a lower entrepreneurship rate, earn less, and work fewer hours than men. Data from the NLSY79 confirms previous findings that women are more risk averse than men. However, while less risk averse men tend to become self-employed, there is no significant effect of risk aversion on women's entrepreneurship decisions. Similarly, greater risk aversion increases earnings for male entrepreneurs, but it has no effect on female entrepreneurial earnings. More risk aversion lowers female wages, but the effects are of modest magnitude. On the contrary, more risk aversion raises male wages. Risk aversion does not explain variation in hours of work for either men or women. These findings and standard decomposition suggest that widely reported differences in risk aversion across genders play only a trivial role in explaining gender gaps in labor market outcomes.

Chapter 3. While more risk averse individuals are less likely to become entrepreneurs, theory predicts that more risk averse entrepreneurs pick ventures with higher expected returns and so they should survive in business longer than their less risk averse counterparts. Using successive entry cohorts of young entrepreneurs in the NLSY79, we find contrary to theory that the most successful entrepreneurs are the least risk averse. This surprising finding suggests that commonly used measures of risk aversion are not indicators of taste toward risk. Instead, measured risk aversion signals weak entrepreneurial ability--the least risk averse are apparently those who can best assess and manage risks. Indeed, our interpretation is consistent with recent experimental evidence linking cognitive ability with a greater willingness to accept risk.

Chapter 4. The fourth chapter investigates the stability of measured risk attitudes over time, using a 13-year longitudinal sample of individuals in the NLSY79.

Bibliography Citation
Cho, In Soo. Four Essays on Risk Preferences, Entrepreneurship, Earnings, Occupations, and Gender. Ph.D. Dissertation, Iowa State University, 2012.
2. Cho, In Soo
Orazem, Peter
Risk Aversion or Risk Management?: How Measures of Risk Aversion Affect Firm Entry and Firm Survival
Working Paper No. 11016, Department of Economics, Iowa State University, August 2011
Cohort(s): NLSY79
Publisher: Department of Economics, Iowa State University
Keyword(s): Attitudes; Cognitive Ability; Earnings; Entrepreneurship; Firms; Occupations; Risk Perception; Risk-Taking; Self-Employed Workers

Permission to reprint the abstract has not been received from the publisher.

The link between measured risk aversion and the decision to become an entrepreneur is well established, but the link between risk preferences and entrepreneurial success is not. Standard theoretical models of occupational choice under uncertainty imply a positive correlation between an individual’s degree of risk aversion and the expected return from an entrepreneurial venture at the time of entry. Because the expected return is the risk neutral equivalent value, a higher expected return implies a higher survival probability, and so more risk averse entrepreneurs should survive more frequently than their less risk averse counterparts. We test that prediction using successive entry cohorts of young entrepreneurs in the National Longitudinal Survey of Youth 1979 (NLSY79). The empirical results soundly reject the prediction: the most successful entrepreneurs are the least risk averse. This surprising finding calls into question the interpretation of common measures of risk aversion as measures of taste for risk. Instead, measured risk attitudes perform as if they are indicators of entrepreneurial ability– the least risk averse are apparently those who can best assess and manage risks. Indeed, our interpretation is consistent with the work of recent experimental studies that find that the less risk averse have higher cognitive ability.
Bibliography Citation
Cho, In Soo and Peter Orazem. "Risk Aversion or Risk Management?: How Measures of Risk Aversion Affect Firm Entry and Firm Survival." Working Paper No. 11016, Department of Economics, Iowa State University, August 2011.