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SUMMARY:Strategic and Natural Risk in Entrepreneurship: An Experimental St
 udy - John Morgan - Professor of Business Administration at the Haas Schoo
 l of Business and Department of Economics UC Berkeley
DTSTART:20150327T120000Z
DTEND:20150327T133000Z
UID:TALK58620@talks.cam.ac.uk
CONTACT:Crystal
DESCRIPTION:We report on the results of experiments where participants cho
 ose between entrepreneurship and an outside option. Entrepreneurs enter a 
 market and then make investment decisions to capture value. Payoffs depend
  on both strategic risk (i.e. the investments of other entrepreneurs) and 
 natural risk (i.e. luck). Absent natural risk\, participants endogenously 
 sort themselves into entrepreneurial types and safe types and both types e
 arn the same expected payoff. Adding natural risk fundamentally changes th
 ese conclusions: Here we observe excessive entry and excessive investment 
 so that entrepreneurs earn systematically less than the outside option. Th
 ese payoff differences persist even after many repetitions of the task. Wh
 en the outside option becomes risky\, we observe a "democratization"  of e
 ntrepreneurship — the average individual enters and exits several times 
 over the course of the experiment. Exit is hastened by unlucky outcomes: W
 hen realized payoffs fall below expected payoffs\, subjects are more likel
 y to exit the market. On the other hand\, skill at the investment task pla
 ys little role in determining the likelihood of entrepreneurship. Finally\
 , we examine an environment where an individual must become an entrepreneu
 r but chooses the stakes over which she will compete. Here\, we observe un
 der-entry and under-investment in the high-stakes market\, while the oppos
 ite is true in the low stakes setting. As a result\, returns to entreprene
 urship are positive under high stakes and negative under low stakes\, even
  after subjects have considerable experience at the task
LOCATION:Judge Business School\, KH107
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