Attitude towards risk can be an important factor in explaining various economic
decisions, such as the choice of self-employment. As a first step towards understanding the
prevalence of self-employment in South Korea, we structurally estimate risk aversion
parameters based on the standard expected utility theory. We use hypothetical lottery
questions from a large-scale longitudinal survey (the Korean Labor and Income Panel
Study) conducted in two waves to a sample of approximately 8,000 individuals. The
estimation results show that the constant relative risk aversion parameter ranges from 0.6 to
0.8: male, younger, less educated, unmarried and higher income individuals are less risk
averse. Erroneous responses are more likely for male, younger, more educated and poorer
respondents. We also find significant impact of responses to the hypothetical questions on
self-employment, which suggests that our estimates for risk preferences are likely predictive
of actual choice of self-employment.