Abstract
In this paper, we discuss the transition from secure employment to risky self-employment (entrepreneurship) caused by a small increase in wealth. Building on the apportioning risk literature, we prove that the transition from secure employment to risky entrepreneurship is based on a measure of the difference between the strength of downside risk aversion and the strength of risk aversion. This result highlights the idea that using the behavioral approach of risky lotteries to study entrepreneurship can produce different results from the traditional economic theory of entrepreneurship, which can have policy implications that must be considered with caution.
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We would like to thank the useful comments of the Editor and the Coordinating Editor. The usual disclaimer applies. Marcos Vergara thanks the support of FONDECYT Project Number 11170052.
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Bonilla, C.A., Vergara, M. Risk aversion, downside risk aversion, and the transition to entrepreneurship. Theory Decis 91, 123–133 (2021). https://doi.org/10.1007/s11238-020-09786-w
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DOI: https://doi.org/10.1007/s11238-020-09786-w