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Optimistic thinking is leading people to set up businesses that have no realistic prospect of financial success, shows new research which may help explain why only fifty per cent of businesses in the UK survive their first five years.
Tracking individuals as they move from paid employment to setting up their own business venture, the study found that business owners with above average optimism earned some 30 per cent less than those with below average optimism. Many of the optimists would have been well advised to remain an employee.
Research - University - Bath - London - School
The research from the University of Bath, the London School of Economics and Political Science, and Cardiff University, published in European Economic Review, explores the financial consequences of becoming an entrepreneur for optimists—people with a tendency to overestimate their chances of doing well and underestimate their probability of failure.
Despite entrepreneurs earning on average less, working longer hours and bearing more risk than their counterparts in paid employment, optimists are more likely than most to mistakenly think they have found a good business opportunity and that they have what it takes to exploit it successfully.
Realists - Pessimists - Ventures
Realists and pessimists are less likely to proceed with unpromising entrepreneurial ventures.
Studies consistently report that about 80 per cent of the population have an overly optimistic outlook. This can increase ambition and persistence, encourage others to cooperate, and generally enhance performance. Ominously though, basing choices on faulty assessments also leads to participation...
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