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American Economic Review Vol. 103 No. 3 2013

Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops

Michael Kremer1; Jean Lee2; Jonathan Robinson3; Olga Rostapshova4

1 Harvard University, 1050 Massachusetts Ave., Cambridge, MA 02139 and NBER, Littauer Center, Cambridge, MA 02138. · 2 The World Bank, 1818 H St. NW, Washington, DC 20433. · 3 University of California, Santa Cruz, 457 Engineering 2, Santa Cruz, CA 95064. · 4 Harvard Kennedy School, 1050 Massachusetts Ave., Cambridge, MA 02139.

open access

Abstract

Many subjects in lab experiments exhibit small-stakes risk aversion, consistent with loss aversion. Those with greater math skills are less likely to show small-stakes risk aversion. We argue that departures from expected utility maximization may help explain why many firms in developing countries leave high expected return investments unexploited. We show that among a sample of Kenyan shopkeepers, inventories are negatively associated with small-stakes risk aversion and positively associated with math skills.

DOI
10.1257/aer.103.3.362
Volume
103
Issue
3
Pages
362-368
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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