The Power of Negative Thinking: A Model of Entrepreneurship, Aspirations, and Fear of Failure

Fear of failure can dominate the choices of individuals. We model its role in the decision to become an entrepreneur and subsequent investments made in pursuit of success using the framework of loss aversion. We show that when the threshold for success is suffi ciently high, fear of failure motivates additional sacrifices by entrepreneurs. When the threshold for success stems from foregone outside options, on the other hand, fear of failure is always de-motivating. Finally, regardless of the yardstick used to measure success, fear of failure is negatively associated with entry into entrepreneurship. Our findings highlight the importance of the interaction between the degree of fear of failure and the aspirations of the would-be entrepreneur.