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How Smart Is the Average Entrepreneur?

In an earlier column, I discussed a paper written by the Chief Economist of the Office of Advocacy of the U.S. Small Business Administration, Chad Moutray, which showed that students who received “mostly A’s” as their college grades were two percent less likely than other students to be self-employed.

A lot of readers commented that college grades don’t necessarily reflect how smart a person is, so we shouldn’t interpret this paper’s results to mean that entrepreneurs are less intelligent than those who work for others.

I completely agree.

But that still leaves open the question of whether entrepreneurs are more or less intelligent than those who work for others.

Of course, the average entrepreneur might be no smarter (or dumber) than anyone else. We might just have intelligent and not-so-intelligent entrepreneurs and non-entrepreneurs.

While the intelligence of entrepreneurs is by no means a burning question in the academic community, a few researchers have looked at how intelligence affects the odds that a person will become an entrepreneur. Here’s what they’ve found:

• A paper published way back in 1989 by Gerrit de Wit and Frans van Winden of the University of Amsterdam showed that people whose IQ scores were higher when measured at age 12 were more likely to be self-employed when they were adults.

• A 2001 article Roope Uusitalo of the Government Institute for Economic Research in Finland reported that the score on mathematical ability section of the Finnish armed forces test (similar to an IQ test) was positively correlated with later self-employment (although the verbal score was negatively correlated).

• A more recent working paper [1] by Simeon Djankov of the World Bank, Yingyi Qian of the University of California at Berkeley, Gérard Roland of the University of California at Berkeley, and Ekaterina Zhuravskaya of the Center for Economic and Policy Research examined “400 entrepreneurs and 540 non-entrepreneurs of the same age, gender, education and location in 7 Brazilian cities” and found that the “entrepreneurs scored quite higher on cognitive scores…”

As you might expect, more intelligent entrepreneurs do better at running their own businesses than less intelligent ones. In a different article, published a year after the one mentioned above, de Wit and Winden found that the self-employed with higher IQs tended to earn more money than those with lower IQs. And the recent working paper by Djankov, Qian, Roland and Zhuravskaya found that “failed entrepreneurs are less smart” than successful ones.

So what do these studies tell us? Maybe they are little more than a statistical curiosity or maybe they hint at a pattern.



Subject to the caveat that we have only handful of studies and all of them are based on correlations, here’s the pattern suggested by the data: The average person who works for herself is more intelligent than the average person who works for others, but (as my earlier column pointed out) she doesn’t do as well in school.