Risk Aversion or Risk Management?: How Measures of Risk Aversion Affect Firm Entry and Firm Survival

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.

Four essays on risk preferences, entrepreneurship, earnings, occupations, and gender

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\u27s 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. A variance decomposition shows that 57% of the total variance in measured risk aversion is attributable to variation in measured risk aversion within individuals and only 43% to variation across individuals. After removing variation attributable to socioeconomic factors, the proportion of within variance drops to 54%, strongly rejecting the presumption that measured risk attitudes are stable over time. We find that an individual\u27s measured risk aversion changes systematically responding to personal economic circumstances. Measured risk aversion responds to fluctuations in employment: duration of employment spells and out of labor force increases risk aversion whereas length of unemployment spells decreases risk aversion. Previous labor market experience also increases risk aversion. Finally, risk aversion is quadratic in age and net family income with an inverted U-shape. Our analysis shows that measured risk aversion cannot be treated as a fixed attitude toward risk but rather a changing attitude that reflects changes in personal economic circumstances. Chapter 5 In Lazear (2005)\u27s model of entrepreneurship, individuals with more diverse academic and occupational training are more likely to become entrepreneurs, while more narrowly trained individuals become employees. This chapter examines whether Lazear\u27s model can also explain which individuals become nonprofit entrepreneurs. Information on successive cohorts of college graduates from a single university from 1982-2006 show that observed diversity of academic and occupational skills increases the probability of nonprofit sector entrepreneurship, consistent with previous findings of for-profit entrepreneurs. In addition, unobservable talents that increase probability of for-profit startups are positively correlated with the unobservable skills that lead to nonprofit start-ups, consistent with a presumed entrepreneurial skill that underlies the Lazear Jack-of-All-Trades model

Do gender differences in risk preferences explain gender differences in labor supply, earnings or occupational choice?

This paper examines the extent to which differences in risk preferences between men and women 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 and more risk averse men are likely to choose paid-employment, there is no significant effect of risk preferences on women\u27s entrepreneurship decisions. Similarly, more risk aversion is associated with higher earnings for male entrepreneurs, but it has no effect on female entrepreneurial earnings. Rising rates of risk aversion lower earnings for women, consistent with theoretical effects of risk preferences on labor earnings, but the effects are of modest magnitude. Risk preferences do not explain variation in hours of work for either men or women. These findings suggest that widely reported differences in risk preferences across genders play only a trivial role in explaining differences in labor market outcomes between men and women

Do Gender Differences in Risk Preferences Explain Gender Differences in Labor Supply, Earnings or Occupational Choice?

This paper examines the extent to which differences in risk preferences between men and women 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 and more risk averse men are likely to choose paid-employment, there is no significant effect of risk preferences on women’s entrepreneurship decisions.� Similarly, more risk aversion is associated with higher earnings for male entrepreneurs, but it has no effect on female entrepreneurial earnings. Rising rates of risk aversion lower earnings for women, consistent with theoretical effects of risk preferences on labor earnings, but the effects are of modest magnitude.� Risk preferences do not explain variation in hours of work for either men or women.� These findings suggest that widely reported differences in risk preferences across genders play only a trivial role in explaining differences in labor market outcomes between men and women.risk aversion; earnings; labor supply; gender gap; self-employment; Blinder-Oaxaca decomposition

Orthogonality properties of transverse eigenmodes of phase conjugate optical resonators

The orthogonality properties of the transverse eigenmodes of optical resonators which have phase conjugate mirrors at both ends are derived. As in conventional resonators and also resonators with only one phase conjugate mirror, it is shown that the transverse eigenmodes are essentially biorthogonal, a relation which is satisfied between the set of modes propagating in one direction around the resonator and the adjoint set of modes propagating in the reverse direction

The Role of Sphingosine Kinase 1/Sphingosine-1-Phosphate Pathway in the Myogenic Tone of Posterior Cerebral Arteries

AIMS: The goal of the current study was to determine whether the sphingosine kinase 1 (SK1)/sphingosine-1-phosphate (S1P) pathway is involved in myogenic vasoconstriction under normal physiological conditions. In the present study, we assessed whether endogenous S1P generated by pressure participates in myogenic vasoconstriction and which signaling pathways are involved in SK1/S1P-induced myogenic response under normal physiological conditions. METHODS AND RESULTS: We measured pressure-induced myogenic response, Ca(2+) concentration, and 20 kDa myosin light chain phosphorylation (MLC(20)) in rabbit posterior cerebral arteries (PCAs). SK1 was expressed and activated by elevated transmural pressure in rabbit PCAs. Translocation of SK1 by pressure elevation was blocked in the absence of external Ca(2+) and in the presence of mechanosensitive ion channel and voltage-sensitive Ca(2+) channel blockers. Pressure-induced myogenic tone was inhibited in rabbit PCAs treated with sphingosine kinase inhibitor (SKI), but was augmented by treatment with NaF, which is an inhibitor of sphingosine-1-phosphate phosphohydrolase. Exogenous S1P further augmented pressure-induced myogenic responses. Pressure induced an increase in Ca(2+) concentration leading to the development of myogenic tone, which was inhibited by SKI. Exogenous S1P further increased the pressure-induced increased Ca(2+) concentration and myogenic tone, but SKI had no effect. Pressure- and exogenous S1P-induced myogenic tone was inhibited by pre-treatment with the Rho kinase inhibitor and NADPH oxidase inhibitors. Pressure- and exogenous S1P-induced myogenic tone were inhibited by pre-treatment with S1P receptor blockers, W146 (S1P1), JTE013 (S1P2), and CAY10444 (S1P3). MLC(20) phosphorylation was increased when the transmural pressure was raised from 40 to 80 mmHg and exogenous S1P further increased MLC(20) phosphorylation. The pressure-induced increase of MLC(20) phosphorylation was inhibited by pre-treatment of arteries with SKI. CONCLUSIONS: Our results suggest that the SK1/S1P pathway may play an important role in pressure-induced myogenic responses in rabbit PCAs under normal physiological conditions