The Power of (Non) Positive Thinking: Self-Employed Pessimists Earn More than Optimists

49 Pages Posted: 4 Sep 2015

See all articles by Christopher J. Dawson

Christopher J. Dawson

Swansea University

David de Meza

London School of Economics & Political Science (LSE) - Interdisciplinary Institute of Management

Andrew Henley

Cardiff Business School, Cardiff University; IZA Institute of Labor Economics

G. Reza Arabsheibani

Swansea University - School of Business and Economics; IZA Institute of Labor Economics

Abstract

Developing further the accumulating evidence that self-employment attracts optimists, this paper investigates the relationship between earnings and prior optimism. It finds that self-employed optimists earn less than self-employed realists. Amongst employees, optimists earn more. These results are consistent with biased expectations leading to entry errors. As a test of validity, we find that amongst the married, future divorcees have higher financial expectations but their realisations are no worse, suggesting our optimism measure captures an intrinsic psychological trait associated with rash decisions.

Keywords: financial optimism, expectations, self-employment

JEL Classification: D84, M13

Suggested Citation

Dawson, Christopher J. and de Meza, David Emmanuel and Henley, Andrew and Arabsheibani, G. Reza, The Power of (Non) Positive Thinking: Self-Employed Pessimists Earn More than Optimists. Available at SSRN: https://ssrn.com/abstract=2655283 or http://dx.doi.org/10.2139/ssrn.2655283

Christopher J. Dawson (Contact Author)

Swansea University ( email )

Singleton Park
Swansea, SA2 8PP
United Kingdom

David Emmanuel De Meza

London School of Economics & Political Science (LSE) - Interdisciplinary Institute of Management ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Andrew Henley

Cardiff Business School, Cardiff University ( email )

Aberconway Building
Colum Drive
Cardiff, CF10 3EU
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

G. Reza Arabsheibani

Swansea University - School of Business and Economics ( email )

Singleton Park
Swansea, Wales SA2 8PP SA2 8PP
United Kingdom
+44 (0) 1792 513682 (Phone)
+44 (0) 1792 295872 (Fax)

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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