Higher risk tolerance may lead to lower risk adjusted returns - research

January 13, 2014

Research Fact : 
Risk Lovers Are More Likely to Start Businesses, and to Fail in the Attempt ! 

The Experiment 
To test the hypothesis that  - people who are more tolerant of risk are more likely to become entrepreneurs—and to perform more poorly in that role— researchers  examined investment data for 400,000 people in Norway. 

Results of experiment 
They found that those who invested in stocks, which are riskier than government bonds or savings accounts, are 50% more likely to subsequently become majority owners in new firms. 

And firms started by these stock investors have 25% lower sales and 15% lower return on assets than firms founded by people who are less tolerant of risk ! 
Reason ? 
Probably because individuals who are tolerant of risk are willing to accept lower expected entrepreneurial returns for a given level of risk, the researchers say.
Research conducted by : Hans K. Hvide of the University of Bergen in Norway and Georgios A. Panos of the University of Stirling in the UK . 
SOURCE: Risk Tolerance and Entrepreneurship