Worries of the poor

The impact of financial burden on the risk attitudes of micro-entrepreneurs

Patricio Dalton, Nguyen Nhung, Julius Rüschenpöhler

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We randomly expose the owners of small retail businesses in Vietnam to scenarios that trigger financial worries and study the effect of this intervention on risk attitudes using an incentive-compatible elicitation method. We find that entrepreneurs exposed to financial worries behave less risk-averse than those assigned to a placebo treatment. This effect is stronger for owners of shops which are smaller and those less exposed to large income shocks in their everyday business. We further show that the effect of financial worries on risk attitudes is not explained by changes in the cognitive functioning of the treated. The findings are consistent with previous results from laboratory experiments with students in developed countries. As such, the paper provides evidence for the external validity of these findings in the context of micro-entrepreneurship in a developing country and points to financial worries as one understudied psychological channel for the effect of material deprivation on decision-making.
Original languageEnglish
JournalJournal of Economic Psychology
DOIs
Publication statusE-pub ahead of print - Aug 2019

Fingerprint

entrepreneur
Entrepreneurship
Vietnam
Developed Countries
Developing Countries
laboratory experiment
Placebos
deprivation
entrepreneurship
incentive
developing country
scenario
decision making
income
Entrepreneurs
Burden
Risk attitude
evidence
student
Owners

Keywords

  • poverty
  • risk preferences
  • financial worries
  • decision-making
  • lab-in-the-field experiment

Cite this

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abstract = "We randomly expose the owners of small retail businesses in Vietnam to scenarios that trigger financial worries and study the effect of this intervention on risk attitudes using an incentive-compatible elicitation method. We find that entrepreneurs exposed to financial worries behave less risk-averse than those assigned to a placebo treatment. This effect is stronger for owners of shops which are smaller and those less exposed to large income shocks in their everyday business. We further show that the effect of financial worries on risk attitudes is not explained by changes in the cognitive functioning of the treated. The findings are consistent with previous results from laboratory experiments with students in developed countries. As such, the paper provides evidence for the external validity of these findings in the context of micro-entrepreneurship in a developing country and points to financial worries as one understudied psychological channel for the effect of material deprivation on decision-making.",
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author = "Patricio Dalton and Nguyen Nhung and Julius R{\"u}schenp{\"o}hler",
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language = "English",
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Worries of the poor : The impact of financial burden on the risk attitudes of micro-entrepreneurs. / Dalton, Patricio; Nhung, Nguyen; Rüschenpöhler, Julius.

In: Journal of Economic Psychology, 08.2019.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Worries of the poor

T2 - The impact of financial burden on the risk attitudes of micro-entrepreneurs

AU - Dalton, Patricio

AU - Nhung, Nguyen

AU - Rüschenpöhler, Julius

PY - 2019/8

Y1 - 2019/8

N2 - We randomly expose the owners of small retail businesses in Vietnam to scenarios that trigger financial worries and study the effect of this intervention on risk attitudes using an incentive-compatible elicitation method. We find that entrepreneurs exposed to financial worries behave less risk-averse than those assigned to a placebo treatment. This effect is stronger for owners of shops which are smaller and those less exposed to large income shocks in their everyday business. We further show that the effect of financial worries on risk attitudes is not explained by changes in the cognitive functioning of the treated. The findings are consistent with previous results from laboratory experiments with students in developed countries. As such, the paper provides evidence for the external validity of these findings in the context of micro-entrepreneurship in a developing country and points to financial worries as one understudied psychological channel for the effect of material deprivation on decision-making.

AB - We randomly expose the owners of small retail businesses in Vietnam to scenarios that trigger financial worries and study the effect of this intervention on risk attitudes using an incentive-compatible elicitation method. We find that entrepreneurs exposed to financial worries behave less risk-averse than those assigned to a placebo treatment. This effect is stronger for owners of shops which are smaller and those less exposed to large income shocks in their everyday business. We further show that the effect of financial worries on risk attitudes is not explained by changes in the cognitive functioning of the treated. The findings are consistent with previous results from laboratory experiments with students in developed countries. As such, the paper provides evidence for the external validity of these findings in the context of micro-entrepreneurship in a developing country and points to financial worries as one understudied psychological channel for the effect of material deprivation on decision-making.

KW - poverty

KW - risk preferences

KW - financial worries

KW - decision-making

KW - lab-in-the-field experiment

U2 - 10.1016/j.joep.2019.102198

DO - 10.1016/j.joep.2019.102198

M3 - Article

JO - Journal of Economic Psychology

JF - Journal of Economic Psychology

SN - 0167-4870

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