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Cited by 84Decision-Making and Behavioral EconomicsExperimental Behavioral Economics StudiesFinancial Literacy, Pension, Retirement Analysis

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

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Dalton, Patricio S., Nhung, Nguyen, Rüschenpöhler, Julius·2020·Journal of Economic Psychology
DOI 10.1016/j.joep.2019.102198
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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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  • Under poverty, people may have the tendency to take less risk for a potential financial gain and to risk more to avoid a potential loss.

    “Under poverty, people may have the tendency to take less risk for a potential financial gain (see e.g., Guiso and Paiella 2008) and to risk more to avoid a potential loss (Dalton et al. 2019).”

    From Poverty and economic decision making: a review of scarcity theory (2022) · cites this paper as Dalton et al. 2019

    The Results (§4.2.1; page unavailable) report that low-income entrepreneurs prompted to consider financial difficulties invested more in a risky bet. But the Risk attitudes section describes a bet using an endowed sum, not a choice to take risks to avoid a potential loss; that motive was not established. The separate claim about taking less risk for a gain is cited to Guiso and Paiella, not Dalton. (LLM, conf=0.86)

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  • Dalton et al. (2019) did not find an effect of financial worries on fluid intelligence.

    “Contrary to the findings of Mani et al. (2013a), they did not find an effect of financial worries on fluid intelligence.”

    From Poverty and economic decision making: a review of scarcity theory (2022) · cites this paper as Dalton et al. (2019)

  • The effect of poverty on fluid intelligence (cognitive capacity), initially found by Mani et al. (2013a), did not hold in replication studies (Dalton et al. 2019; Fehr et al. 2019).

    “First, the effect of poverty on fluid intelligence (cognitive capacity), initially found by Mani et al. (2013a), did not hold in replication studies (Dalton et al. 2019; Fehr et al. 2019).”

    From Poverty and economic decision making: a review of scarcity theory (2022) · cites this paper as Dalton et al. 2019

  • It is unclear how financial scarcity affects risk aversion as studies have shown positive, negative, or no effects.

    “First, it is unclear how financial scarcity affects risk aversion as studies have shown positive (Ong et al. 2019), negative (Dalton et al. 2019), or no effects (Carvalho et al. 2016).”

    From Poverty and economic decision making: a review of scarcity theory (2022) · cites this paper as Dalton et al. 2019

  • These results contradict both the hypothesis that financial scarcity increases risk aversion and findings that cognitive load increases risk aversion.

    “These results contradict both the hypothesis that financial scarcity increases risk aversion and findings that cognitive load increases risk aversion (Deck and Jahedi 2015).”

    From Poverty and economic decision making: a review of scarcity theory (2022) · cites this paper as Dalton et al. (2019)

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Research works printed but not linked: 43

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Authors
Dalton, P. S., Nhung, N., & Rüschenpöhler, J.
Affiliations
  • Tilburg University (NL)
  • Center for Effective Global Action (US)
Corresponding author
Dalton, Patricio S.
ORCID
Dalton, Patricio S.
Venue
Journal of Economic Psychology
Publisher
Elsevier BV
Published
2020-08
Volume
79
Pages
102198
ISSN
0167-4870 (ISSN-L)
DOI
10.1016/j.joep.2019.102198
OpenAlex
W2964621159
Cited by
84
References
7
Citations by year
2026: 10 · 2025: 27 · 2024: 11 · 2023: 14 · 2022: 8 · 2021: 11 · 2020: 2 · 2019: 1
FWCI
4.41
Type
journal article
Language
en
Open access
Licence
Locations
  • Journal of Economic Psychology (publishedVersion, cc-by-nc-nd)
  • Research portal (Tilburg University) (publishedVersion, other-oa)
  • Data Archiving and Networked Services (DANS) (submittedVersion, other-oa)
  • RePEc: Research Papers in Economics (submittedVersion)
Funders
  • Department for International Development
  • Tilburg University
Topics
  • Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
  • Social Sciences › Safety Research › Experimental Behavioral Economics Studies
  • Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
Keywords
financial worry, risk preferences, microentrepreneurs, small retailers, material deprivation, risk aversion, income shocks, cognitive function, generalizability, developing countries

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