Attitudes toward risk underlie virtually every important economic decision an individual makes. In this experimental study, I examine how introducing a time delay into the execution of an investment plan influences individuals’ risk preferences. The field experiment proceeds in three stages: a decision stage, an execution stage and a payout stage. At the outset, in the Decision Stage (Stage 1), each subject is asked to make an investment plan by splitting a monetary investment amount between a risky asset and a safe asset. Subjects are informed that the investment plans they make in the Decision Stage are binding and that they will be executed during the Execution Stage (Stage 2). The Payout Stage (Stage 3) is the payout date. The timing of the Decision Stage and Payout Stage is the same for each subject, but the timing of the Execution Stage varies experimentally.
We recruit 350 subjects, all of whom are over 18 years of age, from catchment areas with the help of village and district leaders in Morogoro, Tanzania. We directly invite all individuals to participate in our study over a period of four weeks.
Each individual in our three-stage study faces two investment choices: one is a risky asset (A), offering a high mean and variance, while the other is a safe asset (B). A had a 50 percent chance of returning five times the amount invested (R) and a 50 percent chance of returning nothing. B pays out the amount invested in it (i.e., the difference between the original money endowment (I) and R, or I-R). There are five groups of investors, and each group is assigned a different time for the execution of their investment plans.
• The Decision Stage (t0): During this stage, each subject makes a plan regarding the investment of 2,000 Tanzanian shillings (TZS) (approximately 1.3 USD). The investment is to be spread between A and B. The subjects knows how long they would have to wait until execution (i.e., they are advised when the execution will occur) when they make their investment plans.
• The Execution Stage (t1): During this stage, individuals are given the cash that is promised in the Decision Stage (I) and told to invest it in accordance with the investment plan made in the Decision Stage. • The Payout Stage (t2): During this stage, the outcomes of lotteries chosen at t0 is revealed (based on a flip of a coin, the risky asset is deemed either successful or otherwise), and each individual receives his or her payout.
Intervention Start Date
2015-06-01
Intervention End Date
2016-06-01
Primary Outcomes (end points)
Amount invested in risky and safe assets
Does the timing of the experimentally assigned second stage (t1) influence the amount invested in risky asset.
Primary Outcomes (explanation)
Secondary Outcomes (end points)
Secondary Outcomes (explanation)
Experimental Design
We recruit 350 subjects, all of whom are over 18 years of age, from catchment areas with the help of village and district leaders in Morogoro, Tanzania. We directly invite all individuals to participate in our study over a period of four weeks.
Each individual in our three-stage study faces two investment choices: one is a risky asset (A), offering a high mean and variance, while the other is a safe asset (B). A had a 50 percent chance of returning five times the amount invested (R) and a 50 percent chance of returning nothing. B pays out the amount invested in it (i.e., the difference between the original money endowment (I) and R, or I-R). There are five groups of investors, and each group is assigned a different time for the execution of their investment plans.
• The Decision Stage (t0): During this stage, each subject makes a plan regarding the investment of 2,000 Tanzanian shillings (TZS) (approximately 1.3 USD). The investment is to be spread between A and B. The subjects knows how long they would have to wait until execution (i.e., they are advised when the execution will occur) when they make their investment plans.
• The Execution Stage (t1): During this stage, individuals are given the cash that is promised in the Decision Stage (I) and told to invest it in accordance with the investment plan made in the Decision Stage. • The Payout Stage (t2): During this stage, the outcomes of lotteries chosen at t0 is revealed (based on a flip of a coin, the risky asset is deemed either successful or otherwise), and each individual receives his or her payout.
Experimental Design Details
Randomization Method
Computer program in Stata
Randomization Unit
Individuals
Was the treatment clustered?
No
Sample size: planned number of clusters
350 individuals
Sample size: planned number of observations
350
Sample size (or number of clusters) by treatment arms
350 units even randomized into one of five treatment arms
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)