IDEAS home Printed from https://ideas.repec.org/a/kap/expeco/v16y2013i3p263-284.html
   My bibliography  Save this article

Poverty and probability: aspiration and aversion to compound lotteries in El Salvador and India

Author

Listed:
  • Dean Spears

    ()

Abstract

Some experimental participants are averse to compound lotteries: they prefer simple lotteries that depend on only one random event, even when the simple lotteries offer lower expected value. This paper proposes that many behavioral “investments” represent more compound risk for poorer people—who often face multiple dimensions of deprivation—than for richer people. As a result, identical aversion to compound lotteries can prevent investment among poorer people, but have no effect on richer people. The paper reports five studies: two initial studies that document that aversion to compound lotteries operates as an economic preference, two “laboratory experiments in the field” in El Salvador, and one Internet survey experiment in India. Poorer Salvadoran women who choose a compound lottery are 27 percentage points more likely to have found formal employment than those who chose a simple lottery, but lottery choice is unrelated to employment for richer women. Poorer students at the national Salvadoran university choose more compound lotteries than richer students, on average, implying that aversion to compound lotteries screened out poorer aspirants but not richer ones. Poorer and lower-caste Indian participants who choose compound lotteries are more likely than those who choose simple lotteries to have a different occupation than their parents, which is not the case for better-off participants. These findings suggest that the consequences of aversion to compound lotteries are different in the context of poverty and disadvantage. Copyright Economic Science Association 2013

Suggested Citation

  • Dean Spears, 2013. "Poverty and probability: aspiration and aversion to compound lotteries in El Salvador and India," Experimental Economics, Springer;Economic Science Association, vol. 16(3), pages 263-284, September.
  • Handle: RePEc:kap:expeco:v:16:y:2013:i:3:p:263-284
    DOI: 10.1007/s10683-012-9333-9
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10683-012-9333-9
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Karla Hoff & Mayuresh Kshetramade & Ernst Fehr, 2011. "Caste and Punishment: the Legacy of Caste Culture in Norm Enforcement," Economic Journal, Royal Economic Society, vol. 121(556), pages 449-475, November.
    2. Segal, Uzi, 1987. "The Ellsberg Paradox and Risk Aversion: An Anticipated Utility Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 175-202, February.
    3. Akay, Alpaslan & Martinsson, Peter & Medhin, Haileselassie & Trautmann, Stefan T., 2009. "Attitudes toward Uncertainty among the Poor: Evidence from Rural Ethiopia," IZA Discussion Papers 4225, Institute for the Study of Labor (IZA).
    4. Maarten Voors & Eleonora Nillesen & Philip Verwimp & Erwin Bulte & Robert Lensink & Daan van Soest, 2010. "Does Conflict affect Preferences? Results from Field Experiments in Burundi," HiCN Working Papers 71, Households in Conflict Network.
    5. Deon Filmer & Lant Pritchett, 2001. "Estimating Wealth Effects Without Expenditure Data—Or Tears: An Application To Educational Enrollments In States Of India," Demography, Springer;Population Association of America (PAA), vol. 38(1), pages 115-132, February.
    6. Spears Dean, 2011. "Economic Decision-Making in Poverty Depletes Behavioral Control," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-44, December.
    7. Juan Camilo Cardenas & Jeffrey Carpenter, 2008. "Behavioural Development Economics: Lessons from Field Labs in the Developing World," Journal of Development Studies, Taylor & Francis Journals, vol. 44(3), pages 311-338.
    8. Engle Warnick James C. & Escobal Javier & Laszlo Sonia C., 2011. "Ambiguity Aversion and Portfolio Choice in Small-Scale Peruvian Farming," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-56, November.
    9. Tomomi Tanaka & Colin F. Camerer & Quang Nguyen, 2010. "Risk and Time Preferences: Linking Experimental and Household Survey Data from Vietnam," American Economic Review, American Economic Association, vol. 100(1), pages 557-571, March.
    10. John Hey & Jinkwon Lee, 2005. "Do Subjects Separate (or Are They Sophisticated)?," Experimental Economics, Springer;Economic Science Association, vol. 8(3), pages 233-265, September.
    11. Kyoungwon Seo, 2009. "Ambiguity and Second-Order Belief," Econometrica, Econometric Society, vol. 77(5), pages 1575-1605, September.
    12. Deshpande, Ashwani, 2011. "The Grammar of Caste: Economic Discrimination in Contemporary India," OUP Catalogue, Oxford University Press, number 9780198072034.
    13. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    14. Joseph Henrich & Steve J. Heine & Ara Norenzayan, 2010. "The Weirdest People in the World?," Working Paper Series of the German Council for Social and Economic Data 139, German Council for Social and Economic Data (RatSWD).
    15. Yoram Halevy, 2007. "Ellsberg Revisited: An Experimental Study," Econometrica, Econometric Society, vol. 75(2), pages 503-536, March.
    16. Cardenas, Juan-Camilo, 2003. "Real wealth and experimental cooperation: experiments in the field lab," Journal of Development Economics, Elsevier, vol. 70(2), pages 263-289, April.
    17. repec:bla:joares:v:9:y:1971:i:2:p:307-332 is not listed on IDEAS
    18. Humphrey, Steven J. & Verschoor, Arjan, 2004. "The probability weighting function: experimental evidence from Uganda, India and Ethiopia," Economics Letters, Elsevier, vol. 84(3), pages 419-425, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:kap:jrisku:v:54:y:2017:i:3:d:10.1007_s11166-017-9262-2 is not listed on IDEAS
    2. Schröder, David & Cavatorta, Elisa, 2014. "Measuring Ambiguity Preferences," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100593, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    Poverty; Reduction of compound lotteries; Compound risk; Employment; El Salvador; India; Lab experiments in the field; O12; D80; D10; J20;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D10 - Microeconomics - - Household Behavior - - - General
    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:expeco:v:16:y:2013:i:3:p:263-284. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla) or (Rebekah McClure). General contact details of provider: http://www.springer.com .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.