Risk, Balanced Skills, and Entrepreneurship

Ed Lazear’s influential “balanced skills” model suggests that entrepreneurs are more likely to be generalists, rather than specialists — jacks of all trades. Lazear’s evidence, while persuasive, has been largely anecdotal, or has come from small samples (e.g., Stanford MBA students).

McQuinn Center friends Chihmao Hsieh, Simon Parker, and Mirjam Van Praag have a new working paper examining the relationship between balanced skills and risk aversion using a large sample from the Netherlands. Check it out:

This paper proposes that risk aversion encourages individuals to invest in balanced skill profiles, making them more likely to become entrepreneurs. By not having taken this possible linkage into account, previous research has underestimated the impacts both of risk aversion and balanced skills on the likelihood individuals choose entrepreneurship. Data on Dutch university graduates provides evidence which supports this contention. It thereby raises the possibility that even risk-averse people might be suited to entrepreneurship; and it may also help explain why prior research has generated mixed evidence about the effects of risk aversion on selection into entrepreneurship.

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