A Systematic Analysis of Risk Attitudes across Partners in Entrepreneurial Double-earner Households

Abstract

The willingness to take risks is one of the overall best predictors of individual self-employment. Most papers compare the willingness to take risks of randomly selected paid employees and self-employed. The contribution of this explorative paper is to revisit the view that risk-taking is mainly an attribute of the self-employed person by explicitly considering that the self-employed and household members usually form an economic unit with blurred boundaries between the business and the private sphere. Specifically, we examine the distribution of risk attitudes of partners within double-earner entrepreneurial households with the German Socio-Economic Panel. Our findings suggest that the more risk-averse partner is self-employed in almost three in ten entrepreneurial households. This finding is not well documented in theory and empirical research. Also, households with relatively risk-averse self-employed individuals differ in several ways from households where the self-employed are relatively more risk-tolerant. Moreover, the distribution of risk attitudes of partners might change over time. Promising avenues for further research are discussed.