A Decision Theory Model for Entrepreneurial Acts

Abstract

The decision to become an entrepreneur is considered as an alternative to wage labor. The potential entrepreneur evaluates whether there are positive expected net present benefits of entrepreneurship relative to the expected gains from wage labor. The expected net gain from entrepreneurship depends both on the average income from successful entrepreneurship weighted by the probability of success and the average income from wage labor weighted by the probability of employment. The inclusion of economic factors not only adds to the understanding of entrepreneurship but suggests avenues by which policy makers can encourage entrepreneurship.