Editing Risk aversion (section)

== The behavioural approach to employment status ==
The basis of the theory, on the connection between employment status and risk aversion, is the varying income level of individuals. On average higher income earners are less risk averse than lower income earners. In terms of employment the greater the wealth of an individual the less risk averse they can afford to be, and they are more inclined to make the move from a secure job to an [[Entrepreneurship|entrepreneurial venture]]. The literature assumes a small increase in income or wealth initiates the transition from employment to entrepreneurship-based decreasing absolute risk aversion (DARA), constant absolute risk aversion (CARA), and increasing absolute risk aversion (IARA) preferences as properties in their [[Utility|utility function]].<ref name=":1">{{Cite journal |last=Bonilla |first=Claudio |date=2021 |title=Risk aversion, downside risk aversion, and the transition to entrepreneurship |journal=Theory and Decision |volume=91 |pages=123–133 |doi=10.1007/s11238-020-09786-w|s2cid=228879460 }}</ref> The [[Apportionment|apportioning]] risk perspective can also be used to as a factor in the transition of employment status, only if the strength of [[Downside risk|downside risk aversion]] exceeds the strength of risk aversion.<ref name=":1" /> If using the behavioural approach to model an individual’s decision on their employment status there must be more variables than risk aversion and any absolute risk aversion preferences.

Incentive effects are a factor in the behavioural approach an individual takes in deciding to move from a secure job to entrepreneurship. Non-financial incentives provided by an employer can change the decision to transition into entrepreneurship as the intangible benefits helps to strengthen how risk averse an individual is relative to the strength of downside risk aversion. Utility functions do not equate for such effects and can often screw the estimated behavioural path that an individual takes towards their employment status.<ref name=":2">{{Cite journal |last=Harrison |first=Glenn |date=2006 |title=Risk Aversion and Incentive Effects: Comment |url=https://www.aeaweb.org/articles?id=10.1257/0002828054201378 |journal=The American Economic Review |volume=95 |issue=3 |pages=897–901 |doi=10.1257/0002828054201378 |via=The University of Queensland}}</ref>

The design of experiments, to determine at what increase of wealth or income would an individual change their employment status from a position of security to more risky ventures, must include flexible utility specifications with salient incentives integrated with risk preferences.<ref name=":2" /> The application of relevant experiments can avoid the generalisation of varying individual preferences through the use of this model and its specified utility functions.