December 20, 2006

Ego Makes Entrepreneurs?

This is a good article from Businessweek.Are Entrepreneurs born with such risk taking qualities or is it the ego in them that create them.

Is an entrepreneur different from the rest of the population or is he/she trying to be different?And does every entrepreneur be successful?

Some interesting facts from the article are given below:

Q: The accepted understanding has been that entrepreneurs have a
greater tolerance for risk than the rest of the population, and yet your study found the opposite to be true. How so?

A: While conventional wisdom assumes entrepreneurs have great risk tolerance compared to the rest of us, in controlled experiments that tracked attitudes to risk, we consistently found that they aren't really that different. In some cases, the entrepreneurs are even more risk averse [than the norm], and yet they continue to bear risk.

"Entrepreneurs, like everybody else, hate uncontrollable risks, but on the other hand, they're overconfident in their own abilities -- they think they can control their abilities in a random drawing of people. It's like the Lake Wobegon effect in assessing their position among peers. They think they're above the average."

Entrepreneurs appear to be risk seeking with respect to their ability. For example, if there are two industries and one has a high cost of ability uncertainty and the other has a low cost of ability uncertainty, the entrepreneur will choose the first case because of his overconfidence.
Even though the second industry has the same mean value, he would be considered just average [there]. While in the first, he thinks he can be Bill Gates. It's that overconfidence in their ability that encourages them to be entrepreneurs.

Read the Complete Article



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