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Linking savings behavior, confidence and individual feedback: A field experiment in Ethiopia

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  • Avdeenko, Alexandra
  • Bohne, Albrecht
  • Frölich, Markus

Abstract

In this paper we investigate behavioral constraints to savings among smallholder farmers in rural Ethiopia. Increasing savings by overcoming such behavioral constraints has been documented to have positive effects on various outcomes such as health, education, and agricultural investments. We causally identify a strong increase in savings to a soft commitment device in the form of a moneybox with a regular savings plan. In our randomized field experiment, we also provide personalized feedback consisting of recommendations to self-set saving goals. These recommendations trigger increases in savings of up to 36 percent. In a detailed analysis of the behavioral characteristics driving these results, we find a strong and robust link between financial confidence and savings behavior. In particular, the savings of underconfident individuals are less than 2/3 of the savings of overconfident individuals — an association stronger than other behavioral traits such as risk-lovingness and present-biasedness. Remarkably, the effect of our personalized feedback is particularly strong for underconfident individuals. We discuss possible underlying mechanisms, rule out a set of alternative behavioral explanations, and address crowding-out behavior into other forms of saving.11We particularly thank Niels Kemper for valuable discussions and inputs during the design of the intervention. Additionally, we thank Jasper Haller, Jan Nimczik, Maria Isabel Santana, and seminar participants at the University of Mannheim and at the Verein für Socialpolitik for very helpful comments and suggestions. Special thanks go to our excellent survey teams from the University of Mekelle, in particular the team leader Dr. Melaku Behre and his team. Jonas Casper, Onur Eryilmaz, Adelina Garamow, Yilma Tedesse, and Philipp Wind provided excellent research assistance. Financial support from SFB 884 Political Economy of Reforms is acknowledged. This study obtained IRB approval from the University of Mannheim “Ethikkommission”. The paper was previously circulated under the title “Underconfidence and the Use of Persuasive Messages in the Attainment of Savings Goals”. The study is registered at AEA RCT Registry under # AEARCTR-0000613.

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  • Avdeenko, Alexandra & Bohne, Albrecht & Frölich, Markus, 2019. "Linking savings behavior, confidence and individual feedback: A field experiment in Ethiopia," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 122-151.
    • Handle: RePEc:eee:jeborg:v:167:y:2019:i:c:p:122-151
    DOI: 10.1016/j.jebo.2019.09.024
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    Cited by:

    1. Antonia Grohmann & Tabea Lakemann & Helke Seitz, 2020. "Savings Goal Calendars as Soft Commitment Devices: Evidence from Small Business Owners in Uganda," Discussion Papers of DIW Berlin 1919, DIW Berlin, German Institute for Economic Research.
    2. Eva MPAATA & Naomy KOSKEI & Ernest SAINA, 2021. "Social Influence and Saving Behavior among small business owners in Uganda: The mediating role of Financial Literacy," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 5(1), pages 17-41.

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    More about this item

    Keywords

    Savings; Moneyboxes; Randomized control trial; Confidence;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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