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The Effects of Experience on Entrepreneurial Optimism and Uncertainty
Author(s) -
FRASER STUART,
GREENE FRANCIS J.
Publication year - 2006
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2006.00488.x
Subject(s) - optimism , homoscedasticity , heteroscedasticity , economics , probit model , estimator , ordered probit , optimism bias , econometrics , contrast (vision) , psychology , social psychology , mathematics , statistics , computer science , artificial intelligence
This paper develops an occupational choice model in which entrepreneurs, who are initially uncertain about their true talent, learn from experience. As a consequence, both optimistic bias in talent beliefs and uncertainty diminish with experience. The model gives rise naturally to a heteroscedastic probit estimator of occupational choices, in contrast to the commonly used homoscedastic estimator. The model is applied to British data on self‐employment and optimism for the period 1984–99. The empirical analysis supports the main propositions of the model: principally, entrepreneurs are found to be more optimistic than employees, and both optimism and uncertainty diminish with experience.