Financial Optimism and Entrepreneurial Satisfaction

Research SummaryAdding to the literature that optimists are attracted to entrepreneurship, this article finds that prior financial optimism has detrimental consequences for entrepreneurial pay satisfaction. Optimists overestimate the likelihood of positive events and will, therefore, tend to overestimate their prospects in entrepreneurship. It follows that conditional on realized entrepreneurial performance, optimists' subsequent pay satisfaction is lower through disappointment. These findings are consistent with theories of self-discrepancy from social psychology. Evidence is also provided that optimism reduces employee pay satisfaction, but since self-employment widens the scope for prospects to be exaggerated, the effects are stronger in self-employment. While selection on optimism implies that entry into entrepreneurship is likely to be excessive, optimism by reducing entrepreneurial pay satisfaction may increase entrepreneurial exits. Managerial summaryThis article examines how prior financial optimism affects entrepreneurial pay satisfaction. Optimists have a generalized tendency to overestimate the likelihood of positive events and will, therefore, tend to overestimate their prospects in self-employment. The results suggest that prior financial optimism reduces entrepreneurial pay satisfaction through disappointment. The same is true for employee pay satisfaction, but since entrepreneurship is typically a more uncertain and turbulent environment, making prospects harder to evaluate, the effects are found to be stronger in self-employment. Copyright (c) 2016 Strategic Management Society.