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Risk Preference and Microfinance Default: Evidence from a Field Experiment in Mekong Delta

Author

Listed:
  • Truong, Quang Thong
  • Nguyen, Quang
  • Vu, Duc Can
  • Pham, Tien Dung
  • Phan, hanh Binh

Abstract

This study aims to explore the link between risk preferences and microfinance default behavior. An interesting aspect of our study is to conduct a field experiment with 164 Vietnamese microfinance borrowers. We first elicit risk preferences for each individual using real payments. We then link the elicited individual’s risk preferences with their default behavior. The results show that defaulting borrowers are more likely to be risk averse rather than risk loving. Our study offers important implications to microfinance policy makers in developing countries.

Suggested Citation

  • Truong, Quang Thong & Nguyen, Quang & Vu, Duc Can & Pham, Tien Dung & Phan, hanh Binh, 2019. "Risk Preference and Microfinance Default: Evidence from a Field Experiment in Mekong Delta," Review of Behavioral Economics, now publishers, vol. 6(4), pages 401–417-4, November.
    • Handle: RePEc:now:jnlrbe:105.00000112
    DOI: 10.1561/105.00000112
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    More about this item

    Keywords

    Credit Rationing; Risk; Preference; Microfinance; Default;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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