Primary Outcomes (explanation)
We will construct a few outcome variables relating to customers’ behavioral traits. The main ones are time consistency and risk aversion. In the baseline and endline surveys, we play two sets of “lab-in-the-field games” to elicit respondent’s preferences.
Borrowers’ attitude towards risk is measured with a standard Multiple Price List (MPL). The MPL protocol consists of presenting the subjects with two different lotteries, Lottery A and Lottery B, entailing six decisions. Payouts are constant but the probabilities of success change from one decision to the other, with Lottery B being riskier than lottery A. Until round three, lottery A gives a higher expected value than lottery B. Starting from round four, Lottery B yields a higher expected value. Therefore, subjects who stay with Lottery A longer than three rounds display increasing levels of risk aversion. Conversely, subjects switching to Lottery B in the earlier rounds would display increasing levels of risk-loving behavior
In addition, customers’ intertemporal preferences are assessed using standard list choices. This protocol consists of two lotteries. In the first one, the respondent has to choose between a Rs. 200 sum to be paid the day after the interview and an equal or larger sum (Rs. 200, 240, 260, 280, and 300) to be paid one month later. The second lottery “shifted” the time horizon of the first lottery by three months. Combining the two lotteries not only allows one to estimate subjects’ discount rate, but also to detect any time inconsistency. If a subject preferred Rs. 260 one month later to Rs. 200 paid tomorrow, she should have also preferred Rs. 260 paid four months in the future to Rs. 200 paid three months in the future. This behavior is defined as “time consistent”. Still, preference “reversals” may emerge. For example, when a subject prefers Rs. 260 one month later to Rs. 200 paid tomorrow, but the choice is reverted for the later rewards, the subject is said to display hyperbolic discounting. Conversely, when a subject prefers Rs. 260 one month later to Rs. 200 paid tomorrow, but this choice is reverted for the earlier rewards, the subject is showing anti-hyperbolic discounting.