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Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops

Author

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  • Michael Kremer
  • Jean Lee
  • Jonathan Robinson
  • Olga Rostapshova

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.

Suggested Citation

  • Michael Kremer & Jean Lee & Jonathan Robinson & Olga Rostapshova, 2013. "Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops," American Economic Review, American Economic Association, vol. 103(3), pages 362-368, May.
    • Handle: RePEc:aea:aecrev:v:103:y:2013:i:3:p:362-68
    DOI: 10.1257/aer.103.3.362
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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