I'm sure that my behavior does not reflect my answers on this test. Given the numbers, I calculate expected value and answer rationally. In real life, a) the values and percentages are much less clear and b) even if they weren't I know I don't follow them as rationally.
I just went through it, choosing almost exclusively certainties. I'm definitely an entrepreneur, although currently a very struggling one.<p>I fear the survey is going to be incredibly influenced by income level and current financial security. If you had changed the magnitudes of the numbers, my answers would have been completely different. I can do the math, but I also know that my immediate financial needs are unmet and that my ability to sustain losses is very limited.
I didn't like this test very much. The financial questions are highly dependent. I guess I was relating to a hypothetical situation rather than the one I'm in now, but I don't think the choices here have anything to do with entrepreneurship; they're all circumstantial.<p>As all entrepreneurs know, things can fluctuate quickly; there are times when $50 today, little as it is, is more important than the potential of $5000 in the distant future, there are times when you need all the fumes you can get to keep things running. Then there are times when there is a lot of cushion available and $50 today is almost so worthless it's not worth considering -- in that case, of course it's better to take the gamble.<p>This test has very little to do with entrepreneurship. I ruined it for everyone and just chose random things.
I'm really not sure it means much to say that people are "risk-adverse" or not; humans (and monkeys! see <a href="http://www.ted.com/talks/laurie_santos.html" rel="nofollow">http://www.ted.com/talks/laurie_santos.html</a>) are BOTH: they prefer to play it safe when they expect a gain, and prefer risk when they expect a loss.<p>For example, people (in general) prefer $500 now than a 50% chance of $1000, but the <i>same people</i> prefer to take a 50% chance of losing $1000 than losing $500 now with certainty.<p>Behaviorists call this "irrational" because the two cases are the same: whatever you prefer, you should prefer the same, that is:<p>- if you're "risk adverse", you should prefer the certain outcome in both cases<p>- if you have a preference for risk, you should take the chance every time.<p>But it's not what happens; to repeat, the <i>same individual</i> usually prefers the outcome that is certain when the expected outcome is a gain, and usually prefers to take a chance when the expected outcome is a loss, even when those options are mathematically identical.<p>So, if one wants to show that entrepreneurs are different from ordinary people as regards to risk, they should study at least those two dimensions: gain/loss. And since most people prefer risk when confronted with a possible loss, then entrepreneurs would have to either<p>- prefer risk always when confronted with a possible loss<p>- prefer risk more often when confronted with a possible gain.<p>- - -<p>If there actually is a difference between "entrepreneurs" and other people, it may be that entrepreneurs have a higher confidence in their own capacities, so that they think that they can influence the future in a good way.
I'm sure my choices here have been completely spoiled by all the pop-science books I read, in that my first thought upon each type of question was "Ah, that's from this and this research, where they found out that..." They need an "are you familiar with these types of questions?" question, because both the statistically expected answer and the rational answer were already known to me. I assume this is the case for more entrepreneurs, so I doubt this questionnaire will display a large discrepancy between entrepreneurs and non-entrepreneurs.<p>All I can say is, Pop-science books are fun, everyone should read more of them.
The questions are flawed because many entrepreneurs have already used up all their risk seeking "slack" and might quite rationally prefer to lose $50 over a 1% chance of losing $1500, since a $50 loss could be dealt with more easily in the context of a ramen budget... while a $1500 loss might destroy the company entirely.<p>In other words, just because you are in a casino and put all your money on double zero doesn't mean that you should also play russian roulette with a pistol while the roulette wheel is spinning.
These tests are flawed because the absolute value of the money we're dealing with is too much of a variable between subjects. $1500 is not much for subject A to lose or gain but it is for subject B.<p>A test should account for that if we want results to be comparable across subjects.
Mr. Ariely's book, Predictably Irrational, is a great read for those who aren't familiar with Behavioral Economics. It contains a lot of solid insights that entrepreneurs should understand, particularly relating to how consumers think.
Lawrence et al (2008), Nature 456, p168-169<p><a href="http://dx.doi.org/10.1038/456168a" rel="nofollow">http://dx.doi.org/10.1038/456168a</a><p>Some snippets from the above:<p><i>"...when subjects were introduced to the hot components of the task, differences were observed. We found that entrepreneurs behaved in a significantly riskier way, betting a greater percentage of their accrued points (63%) than their managerial counterparts (51%)."</i><p><i>"… risk-taking performance in the entrepreneurs was accompanied by elevated scores on personality impulsiveness measures and superior cognitive-flexibility performance. We conclude that entrepreneurs and managers do equally well when asked to perform cold decision-making tasks, but differences emerge in the context of risky or emotional decisions"</i><p><i>"... the entrepreneurs (mean age 51) are comparable to the young adults aged 17–27, whereas the managers (mean age 50.5) resemble their age-appropriate group"</i> [with respect to risk tolerance]<p><i>"There are courses that teach the 'know-how' of entrepreneurship and, within this, teach how to mitigate risk through extensive business planning and market research. Yet given this new evidence, courses teaching the opposite — risk-tolerance in both behaviour and personality — may also be desirable"</i>
Very interesting. I think loss aversion will turn out to be just as prevalent for self-professed entrepreneurs as for the general population, if not more so.
I'm working on a paper about entrepreneurial traits and such mdoells. I'm still not sure if an entrepreneur si risk avers.
Some scholars argue, he likes risks, because he is quiting his job to get an uncertain "payment". Others argue, entrepreneurs don'tlike risks. If they go for an opportunity, they know the risk quite well and soforth have already evaluated the risk and decided, it is doable.
Is their any new thought on this?<p>i have to agree with the others, I just calculated the value and chose the higher one. Interesting could be the outcome of the last questions where no probability, or intrest rate was given.<p>Additionally, I think, even if all of us are entrepreneurs (there's still now agreed definition of the term see <a href="http://bit.ly/amULry" rel="nofollow">http://bit.ly/amULry</a> ) we decide different. We decide different, depending on our situation or the environment (see Gartner 1989ab 1989b, 1990) we are in. I'm a student my self, perhaps getting $150 now could get me through the month, but one million in two month isn't. So I would take the 150 bucks.
The experimental setup isn't great: the HN population almost certainly has an elevated level of education in areas like math and statistics. I don't think you should ever compare subjects who can compute "expected value" with ones who can't. Personally, I don't believe I can give great answers for this, because I'm conscious there's an experiment going on.
The magnitude of the numbers matter -- significantly!<p>I actually tested this out, too: <a href="http://joshua.schachter.org/2008/09/amateur-economist.html" rel="nofollow">http://joshua.schachter.org/2008/09/amateur-economist.html</a><p>See also: prospect theory.
The questions are so abstract that they don't say much about me other than if I understand standard economics theory.<p>In real world situations I always have a measure of difficult to quantify control over the situation, which is completely different than the raw random chance gambling the test checks for.<p>For example, I would never buy a lottery ticket because that is stupid, but I would definitely spend 3 years of my time working obsessively on something that everyone in the world other than my self says has a one in a billion chance of succeeding, because the fact is that I will succeed.
It would make more sense to ask things like "the following situation will occur exactly once in your lifetime. How would you decide? -- 100% chance of getting $1M, or 10% chance of getting $7M?"<p>By making the amounts small, the expectation is that you could run the bet multiple times, in which case it's just an odds game. The real question is what chances do you take that have such volatility, the deviation dwarfs the expectation for a single lifetime.
Interesting. I'm not sure if my moves were right mathematically. I basically played as though I had one shot i.e., I pull a lever with a 5% chance once and I either win or get nothing. Similarly for the losing position. However, if I get to play a lot my answers would be completely different. While the expected value of $1000 with a 13% chance and multiple plays is $130, the probable value for a 13% chance and one play is zero dollars.
I find that I sometimes choose the start-up (pure or within a larger corp.) because it is fundamentally more interesting to make something new or innovative than to do work that would be financially more certain.<p>It is not that the financial reward for a big hit wouldn't be exciting, but it certainly isn't the only reason I tend to gravitate toward start-ups or start-up like situations.
Creating a successful startup confers more than just financial rewards. There are a myriad of other rewards like recognition and professional freedom that factor into the risk calculation. Depending on how much people value those non-monetary things it could be perfectly rational to take the option with a lower expected monetary value.
You should have asked some questions with larger amounts of money at stake, and also asked our current net worth, income, and savings rate. I have enough savings now that my preference for certain outcomes over $2500 intervals is pretty small. If I were living paycheck-to-paycheck I would have given very different answers.
It would also be interesting to see this survey conducted using natural frequencies instead of percentages. Humans are notoriously bad at reasoning with percentages.<p>Compare the following:<p>"I prefer a 1% chance of losing $1000"<p>"I prefer a 5% chance of losing $1000"<p>with this:<p>"I prefer a 1 in 100 chance of losing $1000"<p>"I prefer a 1 in 20 chance of losing $1000"
Just went through it and feel, as it seems many here do, that my financial risk-aversion quotient will be no higher than that of the general population.<p>Does anyone else think that what really makes us entrepreneurs wasn't touched upon by the survey?
As an entrepreneur who needs a quick buck to invest in my startup I feel that this survey is a better gauge of how much one desires money now so as to invest in whatever they're doing.
Yeah, the percentages questions are kind of nuts. Would you expect to determine an exact threshold of the percentage odds an entrepreneur is willing to take?
Is it just me or was choosing a 5% chance at a bigger reward more interesting/fun than choosing a 13% chance at a bigger reward?<p>Dunno, maybe I'm just weird.