Working Paper: NBER ID: w26357
Authors: Dietmar Fehr; Gnther Fink; Kelsey Jack
Abstract: A growing literature associates poverty with biases in decision-making. We investigate this link in a sample of over 3,000 small-scale farmers in Zambia, who participated in a series of experiments involving the opportunity to exchange randomly assigned household items for alternative items of similar value. Analyzing a total of 5,842 trading decisions over a range of household items, we show that exchange asymmetries are sizable and remarkably robust across items and experimental procedures. Using cross sectional, seasonal and randomized variation in financial resource availability, we show that exchange asymmetries decrease in magnitude when subjects are more constrained. Consistent with the interpretation that financial constraints increase decision stakes, we also show that trading probabilities increase when the value of the items involved is exogenously increased.
Keywords: Poverty; Decision-making; Behavioral economics; Exchange asymmetries
JEL Codes: D14; D90; G51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| resource constraints (D20) | decision-making (D70) |
| scarcity (D10) | exchange asymmetries (D51) |
| scarcity (D10) | decision-making quality (L15) |
| hungry season (Q11) | trading probability (F17) |
| value of items (D46) | trading probabilities (F17) |