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Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops

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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
    Note: DOI: 10.1257/aer.103.3.362
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    References listed on IDEAS

    as
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    7. Mobarak, A. Mushfiq & Rosenzweig, Mark R., 2012. "Selling formal Insurance to the Informally Insured," Center Discussion Papers 121671, Yale University, Economic Growth Center.
    8. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
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    Citations

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    Cited by:

    1. Brian Dillon & Joachim De Weerdt & Ted O'Donoghue, 2016. "Paying more for less: why don't households in Tanzania take advantage of bulk discounts?," Working Papers of LICOS - Centre for Institutions and Economic Performance 571688, KU Leuven, Faculty of Economics and Business (FEB), LICOS - Centre for Institutions and Economic Performance.
    2. Petraud, Jean & Boucher, Stephen & Carter, Michael, 2015. "Competing theories of risk preferences and the demand for crop insurance: Experimental evidence from Peru," 2015 Conference, August 9-14, 2015, Milan, Italy 211383, International Association of Agricultural Economists.
    3. Sarah Baird & Joan Hamory Hicks & Michael Kremer & Edward Miguel, 2016. "Worms at Work: Long-run Impacts of a Child Health Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1637-1680.
    4. Anika Jansen & Harald Pfeifer & Julia Raecke, 2017. "Only the brave? Risk and time preferences of decision makers and firms' investment in worker training," Economics of Education Working Paper Series 0124, University of Zurich, Department of Business Administration (IBW).
    5. Sharma, Smriti & Tarp, Finn, 2018. "Does managerial personality matter? Evidence from firms in Vietnam," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 432-445.
    6. Sharma, Smriti & Tarp, Finn, 2018. "Does managerial personality matter? Evidence from firms in Vietnam," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 432-445.
    7. Lau Lilleholt, 2019. "Cognitive ability and risk aversion: A systematic review and meta analysis," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 14(3), pages 234-279, May.
    8. Emma Boswell Dean & Frank Schilbach & Heather Schofield, 2017. "Poverty and Cognitive Function," NBER Chapters, in: The Economics of Poverty Traps, pages 57-118, National Bureau of Economic Research, Inc.
    9. Chang-Tai Hsieh & Benjamin A. Olken, 2014. "The Missing "Missing Middle"," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 89-108, Summer.
    10. Martijn A. Boermans & Daan Willebrands, 2018. "Financial Constraints Matter: Empirical Evidence On Borrowing Behavior, Microfinance And Firm Productivity," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 23(02), pages 1-24, June.
    11. Dev Narayan Sarkar & Kaushik Kundu & Himadri Roy Chaudhuri, 2016. "Purchase Preference Factors for Traditional Rural Retailers: A Cross-sectional Conceptual Study," Vikalpa: The Journal for Decision Makers, , vol. 41(1), pages 9-27, March.
    12. Chen, Chaoyi & Polemis, Michael & Stengos, Thanasis, 2019. "Can exchange rate pass-through explain the asymmetric gasoline puzzle? Evidence from a pooled panel threshold analysis of the EU," Energy Economics, Elsevier, vol. 81(C), pages 1-12.
    13. Khazanov, Alexey & Moav, Omer & Neeman, Zvika & Zoabi, Hosny, 2018. "The Microfinance Disappointment: An Explanation based on Risk Aversion," CEPR Discussion Papers 12659, C.E.P.R. Discussion Papers.
    14. Fafchamps, Marcel & McKenzie, David & Quinn, Simon & Woodruff, Christopher, 2014. "Microenterprise growth and the flypaper effect: Evidence from a randomized experiment in Ghana," Journal of Development Economics, Elsevier, vol. 106(C), pages 211-226.
    15. Dhaniel Ilyas, 2017. "Preliminary Finding of Small and Micro Firms Resilience in Indonesia," LPEM FEBUI Working Papers 201715, LPEM, Faculty of Economics and Business, University of Indonesia, revised Dec 2017.

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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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