Economics Letters 67 (2000) 35–41 www.elsevier.com / locate / econbase And a vision appeared unto them of a great profit: evidence of self-deception among the self-employed a b,c, c c * Gholamreza Arabsheibani , David de Meza , John Maloney , Bernard Pearson a Royal Holloway College, London University, Egham, Surrey TW20 0EX, UK b London School of Economics, Houghton Street, London WC2A 2AE, UK c University of Exeter, Streatham Court, Rennes Drive, Exeter EX44 PU, UK Received 17 November 1998; accepted 28 September 1999 Abstract Evidence is presented that the self-employed expect better financial outcomes than do employees but experience worse realisations. This is consistent with theories that entrepreneurship is driven by unrealistic optimism.  2000 Elsevier Science S.A. All rights reserved. Keywords: Entrepreneurship; Unrealistic optimism JEL classification: D84; M13; D82; D21 1. Introduction According to Adam Smith ‘‘The chance of gain is by every man more or less over-valued and the chance of loss is by most men under-valued.’’ (Smith, 1937, p. 107). Actors and barristers, then as now, were classic cases who perceived a low probability of very high earnings, but imagined it to be not as low as it really was. A substantial body of modern psychological research, surveyed in De Bondt and Thaler (1995), validates Smith’s perspective. In particular, Shelley E. Taylor, 1989, among others, distinguishes between excess optimism about events you cannot affect and excess optimism about those you can. The second kind, much empirical work finds, involves even less realistic expectations than the first. These considerations lead De Meza and Southey (1996) to suggest that entrepreneurs will be drawn disproportionately from the super optimists. Not only are entrepreneurs in control, but the inherent unpredictability of returns means that an optimistic bias makes entrepreneurship seem especially *Corresponding author. Tel.: 144-1392-264-485; fax: 144-1392-263-242. E-mail address: D.E.de-Meza@exeter.ac.uk (D. de Meza) 0165-1765 / 00 / $ – see front matter  2000 Elsevier Science S.A. All rights reserved. PII: S0165-1765(99)00242-6