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Instant gratification: temporal discounting and self-employment

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Abstract

Differences in temporal discounting could separate self-employed individuals from employees working for wages. Drawing on a sample of 13,198 individuals, from the 2012–2013 cross-sectional STEP Skills Measurement Survey, we find that higher temporal discounting is more positively associated with the likelihood of self-employment. We further find that younger individuals with higher temporal discounting are more likely to engage in self-employment. The association of lower socioeconomic status at a young age or those who experienced economic shocks at a young age with the likelihood of self-employment is only significant when interaction effects of temporal discounting and age are present in the model. Risk seeking is not associated with the likelihood of engagement in self-employment under higher discounting. These findings have implications for the self-employment literature as well as the literature on behavioral decision making.

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Notes

  1. For brevity, we use the term “discounting” throughout.

  2. http://microdata.worldbank.org/index.php/catalog/step/about

  3. Details for this calculation are based on STEP Skills Measurement Surveys: Innovative Tools for Assessing Skills (page 15).

  4. In the survey: Q.5a.4–10, Q.5a.21–23

  5. In the survey: Q.5a.11–17, Q.5a.24–26

  6. In the survey: Q.5a.11–17, Q.5a.24–26

  7. The variable label in the STEP data is “ISCED.”

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  1. Price College of Business, University of Oklahoma, 307 W. Brooks St., Norman, OK, 73069, USA

    Marcus T. Wolfe

  2. Villanova University, 800 E. Lancaster Ave., Villanova, PA, 19085, USA

    Pankaj C. Patel

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Wolfe, M.T., Patel, P.C. Instant gratification: temporal discounting and self-employment. Small Bus Econ 48, 861–882 (2017). https://doi.org/10.1007/s11187-016-9823-9

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