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jpulgarin comments on Which College Major? - Less Wrong
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This is why I said "average" venture-backed founder. You may have tons of assets such that losing/gaining 10% is not a big deal, or you may be naturally less risk-averse than the average person.
Some level of risk-aversion is rational, and it's not obvious to me if people are naturally over or below that level. it's also not obvious to me at all that people on LW would have unnaturally low risk-aversion.
Ok, I now think it's possible that you were right about the "average" founder, but for a different reason--it only depends on what assumptions we make about the distribution of rationality within the set of all founders. I'm not really interested in that right now.
However, I am assuming that the audience of LW is MORE rational than average. They should be LESS risk averse, because "A risk averse agent can not be rational" (source: http://lesswrong.com/lw/9oe/risk_aversion_vs_concave_utility_function/ )
Thus, I believe that it is somewhat disingenuous to use that paper to say that founding a startup has negative expected utility--actually, the EXPECTED utility is very high (because the average outcome is great), and it is very rational. We should definitely be encouraging people here to start startups.
Risk aversion, as it applies to wages and startups, is measured in money not utility. If you spend money only on yourself it has diminishing returns: the first $50K has a huge effect on your happiness, while the $50K that takes you from $5M to $5.05M much less. So you'd be quite rational to be risk averse in terms of money, preferring a certainty of $1M to even odds of $3M.
(I give away 30% of my money, and if I suddenly earned a large amount I would probably give away more. Charity doesn't have diminishing returns until you're giving huge amounts of money, so I'm not very risk averse.)