Liquidity under Constraint: Experimental Evidence on Behavioural Adaptation to Sudden Monetary Shocks

Last registered on April 14, 2026
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Pre-Trial

Trial Information

General Information

Title
Liquidity under Constraint: Experimental Evidence on Behavioural Adaptation to Sudden Monetary Shocks
RCT ID
AEARCTR-0018039
Initial registration date
April 13, 2026

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
April 14, 2026, 9:36 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

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Primary Investigator

Name
Richie Dilip Kurian
Affiliation
University of Essex
Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status
In development
Start date
2026-04-22
End date
2026-05-30
Keywords
Behavior, Finance & Microfinance, Lab
Additional Keywords
tax compliance, demonetisation, liquidity shock, audit probability, informal economy, experimental economics, behavioural responses, policy anticipation
JEL code(s)
H26, D91, C91, E52
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
This study examines how individuals adjust their financial behaviour when faced with a sudden liquidity shock combined with changes in tax enforcement. In a laboratory experiment, participants repeatedly allocate income between a formal, taxed deposit account and an informal, untaxed cash holding. In each round, participants must finance a mandatory expenditure by allocating payments between deposits and cash. Expenditure from cash is subject to a friction cost, capturing the relative difficulty of using cash compared to digital payment methods.
The experimental design compares behaviour across three treatments: a baseline with no shock, an unanticipated shock, and a pre-announced shock. In both unanticipated shock and preannounced shock treatments, a policy intervention invalidates accumulated cash holdings unless they are converted into the formal system. The amount converted would determine audit probabilities of the subsequent rounds. In addition to these incentivised tasks, survey-based measures are used to elicit individual behavioural traits, including risk preferences, loss aversion, tax morale, and lying aversion, which are incorporated as heterogeneity variables in the analysis.
The study evaluates whether individuals adjust behaviour in anticipation of policy changes, how they respond to unexpected shocks, and whether changes in compliance persist after enforcement returns to baseline levels. The findings aim to provide causal evidence on behavioural responses to combined liquidity and enforcement shocks, with implications for policies such as demonetisation and efforts to increase tax compliance.
External Link(s)

Registration Citation

Citation
Dilip Kurian, Richie. 2026. "Liquidity under Constraint: Experimental Evidence on Behavioural Adaptation to Sudden Monetary Shocks." AEA RCT Registry. April 14. https://doi.org/10.1257/rct.18039-1.0
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
Participants take part in a laboratory experiment in which they repeatedly allocate income between a formal, taxed deposit account and an informal, untaxed cash holding over 15 rounds. In each round, participants must also finance a mandatory expenditure using deposits, cash, or a combination of both. The experiment includes three treatments: a baseline with no shock, an unanticipated shock, and a pre-announced shock. In the two shock treatments, a policy intervention is introduced after round 7 that invalidates accumulated cash unless it is converted into the formal system. The amount converted determines the audit probability during the subsequent three rounds (rounds 8–10). From round 11 onward, the audit probability returns to its baseline level.
Intervention Start Date
2026-04-22
Intervention End Date
2026-05-30

Primary Outcomes

Primary Outcomes (end points)
Deposit allocation per round: the amount allocated to the formal deposit account in each round.
Conversion amount: the amount of accumulated cash converted into the formal system at the post-round-7 conversion stage in the shock treatments.
Post-shock deposit allocation: deposit allocation in rounds 8–15, with particular focus on persistence in rounds 11–15 after audit probabilities return to baseline.
Expenditure composition: the share of the mandatory expenditure financed from deposits rather than cash in each round.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Cash holdings carried forward across rounds.
Audit bracket reached at the conversion stage, as determined by the amount converted.
Accumulated wealth at the end of the experiment.
Round-by-round dynamics of compliance after the shock, including the decay of treatment differences in rounds 11–15.
Heterogeneous treatment effects by behavioural heterogeneity variables, including risk preferences, loss aversion, lying aversion, and tax morale.
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
This study is a laboratory experiment with three treatments. In all treatments, participants complete 15 rounds in which they allocate income between a formal, taxed deposit account and an informal, untaxed cash holding. In each round, they must also finance a mandatory expenditure using deposits, cash, or a combination of both. At the end of every round, informal cash holdings are subject to audit with a fixed probability, and detected cash holdings are taxed with a penalty.

In the baseline treatment, no policy shock occurs and the audit probability remains constant throughout the experiment. In the two shock treatments, a one-time intervention occurs after round 7: accumulated cash becomes invalid unless it is converted into the formal system. The amount converted determines the audit probability during rounds 8–10, during which both converted amounts and any undeclared cash holdings remain subject to audit. One shock treatment is unanticipated, while the other is announced in advance at the start of the experiment. Audit probabilities return to baseline in rounds 11–15.
The design allows comparison of allocation, conversion, and expenditure behaviour across treatments and across phases of the experiment.
Experimental Design Details
Not available
Randomization Method
Randomization done by computer prior to the start of each session, with each session assigned to one treatment arm.
Randomization Unit
experimental session
Was the treatment clustered?
Yes

Experiment Characteristics

Sample size: planned number of clusters
8-9 sessions ideally, but the number can vary with respect to availability of participants.
Sample size: planned number of observations
ideally 30 per session. A total of 240 to 270 participants with 80 to 90 per treatment.
Sample size (or number of clusters) by treatment arms
240- 270 individuals
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
University of Essex Ethics Committee (Ethics Sub Committee 3)
IRB Approval Date
2026-02-23
IRB Approval Number
ETH2526-0742
Analysis Plan