Who Wants to Be an Entrepreneur? Entrepreneurial Activity, Social Skills and IQ

We study how the trade-off between being an entrepreneur and investing in the financial markets is affected by cognitive ability and social skills. We test these hypotheses using a unique dataset that has available information on individual characteristics and choices for a representative sample of the Swedish population over 1966-2006. We show that social skills – i.e., willingness to assume responsibility, independence, outgoing character, persistence, emotional stability, initiative and the ability to continuously interact with other individuals – are the main factor that affect the decision to be an entrepreneur:. The impact of social skills is magnified by the characteristics of the environment as both the presence of local entrepreneurship in the area in which the individual operates and the degree of entrepreneurship of the parental family magnify the effect of social skills in increasing the probability of being an entrepreneur. Social skills lead to lower financial performance and higher risk taking, suggesting that the effect of social skills is to lower the risk aversion of the individual. Our findings have normative and policy implications, suggesting that the choice of being an entrepreneur, as opposed to being a shareholder, is related to the social skills of the individual. Heritage and environmental constraints magnify the impact of social skills. JEL classification: G11, M13, J24