Some Economists Have Been Puzzled That Although Entrepreneurs Take On

Some economists have been puzzled that although entrepreneurs take on the risk of losing money by starting new businesses, on average their incomes are lower than those of people with similar characteristics who go to work at large firms. Economist William Baumol believes part of the explanation for this puzzle may be that entrepreneurs are like people who buy lottery tickets. On average, people who don’t buy lottery tickets are left with more money than people who buy tickets because lotteries take in more money than they give out. Baumol argues that “the masses of purchasers who grab up the [lottery] tickets are not irrational if they receive an adequate payment in another currency: psychic rewards.”
a. What are “psychic rewards”?
b. What psychic rewards might an entrepreneur receive?
c. Do you agree with Baumol that an entrepreneur is like someone buying a lottery ticket? Briefly explain.

Posted in Uncategorized