nep-mfd New Economics Papers
on Microfinance
Issue of 2007‒06‒23
two papers chosen by
Olivier Dagnelie
University of Namur

  1. Inconsistent Choices in Lottery Experiments: Evidence from Rwanda By Sarah Jacobson; Ragan Petrie
  2. Mental Accounting and Remittances: A Study of Malawian Households By Davies, Simon; Easaw, Joshy; Ghoshray, Atanu

  1. By: Sarah Jacobson; Ragan Petrie
    Abstract: Lottery experiments have been performed in many contexts to test theories of risk aversion and to measure risk preferences. People are typically offered a series of lotteries with increasing expected payoffs and variances. A person with a concave utility function should switch from risky bets to safer bets at some point and never switch back. Switching back implies preferences inconsistent with a concave utility function. Our experiment, conducted with a population of adults in Rwanda, presents respondents with a series of binary-choice lotteries over gains and losses. We observe that 54-55% of subjects made at least one inconsistent choice over gains or losses, and 7-13% made at least two inconsistent choices. This holds for both hypothetical and real lottery payoffs. Inconsistent choices were less common when stakes were higher, and women are more likely to be inconsistent. While risk aversion alone is not correlated with actual economic outcomes, such as membership in savings (tontines) and insurance groups and holding a larger number of bank accounts, inconsistency is.
    Date: 2007–04
  2. By: Davies, Simon; Easaw, Joshy; Ghoshray, Atanu
    Abstract: In this paper we use a behavioural approach to studying household consumption behaviour in Malawi. In particular we are interested to know whether households use mental accounting when consuming different categories of good. It is useful for assessing the impact of remittances on household consumption behaviour. We use 1998 cross-sectional data to find the following key results: (i) mental accounting systems are in operation. Remittance income exhibits a high marginal propensity to save, (ii) household income influences consumption habits, (iii) receipt of remittance income impacts on saving and spending habits. This is in line with the theory of remittances and corresponding mental accounting theory, and, finally, (iv) both remittances and loans are used for consumption smoothing and investment purposes.
    Keywords: Remittances; Household Behaviour; Consumer Economics; Economic Development; Africa; Malawi
    JEL: D12 D1 O15
    Date: 2006–10

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