Wharton finance professor Nikolai Roussanov has published some interesting new research on entrepreneurs in a paper titled, "Diversification and Its Discontents: Idiosyncratic and Entrepreneurial Risk in the Quest for Social Status," On the Knowledge@Wharton website, Roussanov explains his findings about what drives entrepreneurs. He finds that entrepreneurs care about relative wealth, more so than absolute wealth. In other words, they want to reach a higher level of income than other high-achieving individuals, and they want the social status that comes with that perch atop the pecking order. Here's an excerpt:
Socially, Roussanov says, aspiring entrepreneurs do not want to merely keep up with the proverbial Jones; they want to get marginally ahead of them. "Absolute wealth is not as important to them as relative wealth." Entrepreneurs also save more and spend less as a portion of their incomes than other people, according to Roussanov. The consumptive value of money isn't their motivation. Rather it's the social esteem that comes with achieving incrementally greater wealth than they had previously, and than their perceived peer group has. Of course, "Who 'the Jones' are changes as you progress," Roussanov points out. "First you think, 'I know these guys are successful and I would like to be like them.' But as you progress, you change your comparisons. You want to be in the Forbes 400, then in the top 10 and so forth." In his paper, Roussanov notes that "if the satisfaction brought by 'getting ahead of the Joneses' outweighs the danger of falling behind, risky activities with highly idiosyncratic payoffs, such as entrepreneurship, can be particularly attractive." By contrast, "Other people may not have this preference for status. They look at the risks and say, 'This is too much for me.'"
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