Question

1. Experience and formal education were often used as a proxy for (entrepreneurial) ability. Briefly discuss the advantages and disadvantages of using each of them. How does your answer help explain why empirical studies of entrepreneurial choice often include both measures (such as years of schooling and years of work experience)?

Answer 1

Years of experience is usually an indicator of the skills and capabilities of the person, however with increase in experience (And hence age), the risk appetite of the person also generally reduces, leading to lower inclination towards entrepreneurship.

Formal education leads to a network of peers and industry professionals, which can be tapped into for desired skills required for entrepreneurship. In addition, it leads to strong theoretical background and knowledge base. However, we see several examples of successful entrepreneurs in real world who dropped out at some point in their formal education. While formal education leads to strong hard skills / conceptual base, there are several skills such as innovation, leadership, interpersonal skills which are usually not catered to by the formal education and can be attained by practical experience.

Thus, the empirical studies usually include both the measures - conceptual base and practical skills.