The Myth of the Risk-Tolerant Entrepreneur
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2004
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Abstract
Entrepreneurs have long been assumed to be more risk-tolerant than the general population. In this article, we analyze the financial risk propensity of business founders using a unique, representative dataset of nascent entrepreneurs in the United States. We deploy two models of entrepreneurial behavior: a strategic model of risk tolerance, based on investment choices; and a non-strategic model of risk tolerance, based on information bias about business success. For both models, our empirical results consistently show that nascent entrepreneurs are more risk-averse than non-entrepreneurs. To reconcile the financial risk aversion of entrepreneurs with the high risk of financial loss among startups, we suggest that many of the motivations that individuals have for founding business ventures are non-pecuniary in nature. © 2004, Sage Publications. All rights reserved.
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Xu, H, and M Ruef (2004). The Myth of the Risk-Tolerant Entrepreneur. Strategic Organization, 2(4). pp. 331–355. 10.1177/1476127004047617 Retrieved from https://hdl.handle.net/10161/26698.
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Scholars@Duke
Martin Ruef
My research considers the social context of entrepreneurship from both a contemporary and historical perspective. I draw on large-scale surveys of entrepreneurs in the United States to explore processes of team formation, innovation, exchange, and boundary maintenance in nascent business startups. My historical analyses address entrepreneurial activity and constraint during periods of profound institutional change. This work has considered a diverse range of sectors, including the organizational transformation of Southern agriculture and industry after the Civil War, African American entrepreneurship under Jim Crow, the transition of the U.S. healthcare system from professional monopoly to managed care, and the character of entrepreneurship during early mercantile and industrial capitalism.
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