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Make an Objective Decision About Starting a Business by Setting Aside Anxieties About Risk

Three activities that can help people transcend loss aversion and the endowment effect to determine whether starting a business is right for them are shown in Figure 2.1. The first two activities, "Determining what you want out of life" and "Having a good sense of what's the 'worst thing that can happen' if your business fails," are usually needed to get a person to the point where he is open to even considering starting his own business. You'll see this reality reflected in several of the examples that follow. The third activity, "Researching the business opportunity," is needed to help a person assess the attractiveness of a particular business opportunity.

Figure 2.1

Figure 2.1 Activities that enable an individual to set aside risk aversion and the endowment effect and make an objective decision regarding whether starting a business is right for him or her

An awareness of these activities can be very helpful for two reasons. First, if you're thinking about starting your own business, the activities can be used as a literal checklist to help you overcome the natural tendency to yield to loss aversion and the endowment effect in your own life. These are powerful effects, and they typically can't simply be willed away. You have to first convince yourself that starting a business is the right thing to do before you can convince others. Second, an awareness of the activities is helpful because, collectively, they are holistic and deal with both the personal and the business side of starting a business.

Let's now take a closer look at these three activities.

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