Attitudes Toward Ambiguity Among Self-employed and Incorporated Entrepreneurs

TL;DR

This paper explores how entrepreneurs' attitudes toward ambiguity influence their decision-making, revealing that incorporated entrepreneurs are less ambiguity-averse and unincorporated self-employed are more ambiguity-sensitive, affecting their responsiveness to new information.

Contribution

It introduces a dual-dimensional framework of ambiguity attitudes—aversion and sensitivity—and empirically demonstrates their distinct roles in entrepreneurial behavior.

Findings

Incorporated entrepreneurs show lower ambiguity aversion than employees.

Unincorporated self-employed individuals are more ambiguity-sensitive.

Patterns hold after controlling for risk attitudes, optimism, and demographics.

Abstract

How do entrepreneurs act on their beliefs when probabilities of outcomes are unknown but subjectively perceived? We theorize that two distinct dimensions of ambiguity attitudes influence entrepreneurial action: ambiguity aversion - the unwillingness to bear ambiguity - and ambiguity sensitivity - how individuals discriminate between different levels of perceived chances of success. The second dimension determines how much entrepreneurs adjust their actions based on new information - a distinct aspect that cannot be captured by ambiguity aversion alone. Our theory suggests that entrepreneurs with different growth orientations have different ambiguity attitudes as compared to employees. Using incentivized measures from a large-scale survey, we find that incorporated entrepreneurs exhibit lower ambiguity aversion than employees, indicating that they are more willing to act under ambiguity. Distinctively, unincorporated self-employed individuals show higher ambiguity sensitivity, indicating that their actions are more responsive to changes in their beliefs. These patterns persist after controlling for risk attitudes, optimism, cognitive ability, and demographics. Our results highlight the distinct impacts of ambiguity aversion and ambiguity sensitivity on entrepreneurial actions.