Financial decision-making behaviors of Ethnic Tibetan Households based on mental accounting

Ethnic Tibetans (ETs) typically reside in the remote plateaus of China and possess strong cultural and spiritual values. Their financial decision-making is influenced by economic and physical factors, unique culture, social norms, and psychological motivators. We conducted an in-person survey of 480 randomly selected ET households across four provinces in rural China. The survey data was analyzed using three different econometric models—probit, ordered probit, and ranked ordered logit—to examine the choice of borrowing from formal or informal credit sources, the number of sources borrowed from, and repayment priority. Our findings indicate that mental accounting plays a significant role in the financial decision-making process of ET households. Additionally, we find that the informal credit source is strongly associated with the financial decisions of ET households. The majority of loans from formal financial institutions are used to meet daily needs, as opposed to purchasing productive inputs. Our results also suggest that strong social relationships and religious beliefs prevent households from defaulting, and that loans from formal financial sources receive repayment priority. China would benefit from promoting inclusive finance and encouraging the adoption of improved agricultural practices to support the prosperity of ET and other minority communities.