Business dynamism is an important component of the reallocative process and economic efficiency. However, data shows that the pace of business dynamism in the U.S. has fallen over recent decades. According to prior literature, the declining pace of business dynamism can be attributed to declining startup rates. In this paper, we show in theory that individual risk aversion can play a role in explaining the declining business dynamism. The U.S. economy has experienced rising returns and variance of human capital since 1980. The rising returns and variance would tend to increase the gap in the investment in entrepreneurial skills between the most and the least risk averse. Rising variance also reduced the human capital investment for the most risk averse as well. As a result, the supply of entrepreneurs with critical entrepreneurial skills for business success would have been decreasing, which suggests that startup activity has been subdued and entrepreneurial failure has been steadily increased.