Using French administrative data on job-creating entrepreneurs, I estimate a life-cycle model in which risk-averse individuals can start businesses and return to paid employment. Then, I use the dynamic model to value the option of returning to the labor market in case of failure. For new entrepreneurs, this option is worth 6.4× the average net wage in the country, which represented 136,000€ in 2018. This option value is explained by the unobserved heterogeneity in entrepreneurial abilities and the random-walk component of productivity. Estimated unobserved benefits of entrepreneurship represent 38.6% of the average net wage pre-tax per year (some 15% of profits), or 8,250€ in 2018. Unobserved benefits add up to 90,700€ over the average entrepreneurial spell. Together, unobserved benefits and the option value of returning to paid employment explain 42% of firm creations.

I estimate a life cycle model of portfolio choices that incorporates the relationship between market returns and the skewness of idiosyncratic income shocks. The cyclicality of skewness can explain (a) low stock market participation among young households, (b) why the equity share of participants slightly increases until retirement, and (c) why renters invest less in stocks than do homeowners. With a relative risk aversion of 6 and yearly participation cost of $250, the model matches the evolution of wealth, participation, and conditional equity shares over the life cycle. Nevertheless, cyclical skewness increases the equity premium by at most 0.5 percentage points.

Using Swedish administrative panel data, we document that workers facing higher left‐tail income risk when equity markets perform poorly have lower portfolio equity share. In line with theory, the relationship between cyclical skewness and stock holdings increases with the share of human capital in a worker's total wealth and vanishes as workers get closer to retirement. Cyclical skewness also predicts portfolio differences within pairs of identical twins. Our findings show that households hedge against correlated tail risks, an important mechanism in asset pricing and portfolio choice models.