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American Economic Review: Vol. 103 No. 3 (May 2013)

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Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops

Article Citation

Kremer, Michael, Jean Lee, Jonathan Robinson, and Olga Rostapshova. 2013. "Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops." American Economic Review, 103(3): 362-68.

DOI: 10.1257/aer.103.3.362

Abstract

Many subjects in lab experiments exhibit small-stakes risk aversion, consistent with loss aversion. Those with greater math skills are less likely to show small-stakes risk aversion. We argue that departures from expected utility maximization may help explain why many firms in developing countries leave high expected return investments unexploited. We show that among a sample of Kenyan shopkeepers, inventories are negatively associated with small-stakes risk aversion and positively associated with math skills.

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Authors

Kremer, Michael (Harvard U)
Lee, Jean (World Bank)
Robinson, Jonathan (U CA, Santa Cruz)
Rostapshova, Olga (Harvard U)

JEL Classifications

D22: Firm Behavior: Empirical Analysis
D81: Criteria for Decision-Making under Risk and Uncertainty
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
G31: Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
O14: Industrialization; Manufacturing and Service Industries; Choice of Technology


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