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Trial Title
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Insurance against cognitive droughts
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Cognitive droughts
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Trial Status
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on_going
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completed
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Abstract
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Before
Rainfall insurance has been typically understood as a tool for decreasing ex-post volatility, increasing income by reducing the need to trade-off investments that maximize expected income with others that minimize risks. Recent evidence about how being concerned with scarcity induces tunneling—channeling one’s mental bandwidth for decisions involving that dimension in which the individual faces scarcity—suggest that insurance might also play a different role: by making farmers less sensitive to stimuli that trigger water scarcity being top of mind, rainfall insurance might shield farmer’s psychology from tunneling effects. This means that insured farmers might display higher attention, memory and impulse control for decisions unrelated to water (and the converse for those involving water) when compared to uninsured farmers. This paper randomly assigns rainfall insurance to family farmers in a drought-prone region in Northeast Brazil, documenting its effects on economic decisions related and unrelated to water, and on brain's executive functions.
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This paper tests whether uncertainty about future rainfall affects farmers’ decision-making through cognitive load. Behavioral theories predict that rainfall risk could impose a psychological tax on farmers, leading to material consequences at all times and across all states of nature, even within decisions unrelated to consumption smoothing, and even when negative rainfall shocks do not materialize down the line. Using a novel technology to run lab experiments in the field, we combine survey experiments with recent rainfall shocks to test the effects of rainfall risk on farmers’ cognition to test whether it decreases farmers’ attention, memory and impulse control, and increases their susceptibility to a variety of behavioral biases. Testing whether farmer’s cognitive performance is relatively less impaired in tasks involving scarce resources can provide evidence of whether the effects operate through the mental bandwidth mechanism. Last, exploiting random variation in the monthly payday of Bolsa Família (Brazil's flagship conditional cash transfer program), we will decompose the cognitive effects of uncertainty into those of risk and anticipation.
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Last Published
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April 05, 2015 04:49 PM
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June 05, 2017 10:53 AM
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Intervention (Public)
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Before
The intervention is the random assignment (at no cost to the recipient) of rainfall insurance, which pays out a lump sum of R$ 170 (about USD 60) by the end of June if the municipal-level harvest loss is 70% or above, according to State's extension authority report publicized by May 31st, 2015.
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Survey experiments that randomize drought-related messages aimed at priming farmers about future rainfall risk.
We also exploit natural experiments, linked to random variation in rainfall levels with respect to local historical trends, and randomness in paydays of Bolsa Família - since it is based on the last digit of CPF, Brazil's social security number.
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Primary Outcomes (End Points)
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Before
We document the effects of our treatments on 5 types of outcomes:
(1) Economic decisions related to water, e.g.: real decisions, from the accuracy of farmer's recall of the number of rainy within the last 30 days to the accuracy of their estimate of the volume of water in their water tanks; and decisions in hypothetical experiments, including patience, trust and reciprocity in water-related tasks;
(2) Economic decisions unrelated to water, e.g.: decisions in hypothetical experiments, including patience, trust and reciprocity in non-water related tasks;
(3) Cognitive performance in tasks related to water, e.g.: sensitivity to framing and attention and memory in water-related tests;
(4) Cognitive performance in tasks unrelated to water, e.g.: sensitivity to framing and attention and memory in non-water related tests;
(5) Other outcomes, e.g. locus of control
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We document the effects of the treatments on worries about rainfall and 3 groups of outcomes:
(1) Cognitive performance in tasks aimed at assessing working memory, attention and impulse control (executive functions) and sensitivity to anchoring;
(2) Focus, comprising tasks involving scarse resources;
(3) Economic decisions, such as willingness to attend to credit and insurance offers.
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Primary Outcomes (Explanation)
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Before
We have several outcome variables for each of the 5 types of outcomes. Whenever we have matching questions for types (1) and (2) - e.g. the same experiment about patience, related to water in one case, and unrelated in the other case - or (3) or (4) - e.g. the same experiment about attention, related to water in one case, and unrelated in the other case -, we also consider a derivative outcome given by the difference between the two outcomes.
For cognitive outcomes, we consider two versions of each: penalized by response time over the phone, and not penalized.
We will include municipality fixed-effects in order to control for fixed unobservable factors, in particular different random assignment probabilities (since the number of eligible farmers in each municipality is unknown). We will cluster standard errors at the individual-level.
We will convert all outcomes to z-scores and take the average of them within each type, using those averages as dependent variables besides analyzing each outcome in isolation.
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After
We have several outcome variables for each of the 3 types of outcomes:
(1) Executive functions are measured through digit span tests in which subjects must remember as many digits from a given sequence of numbers and through stroop tests, in which subjects must answer the number of times they hear a particular digit repeated in a sequence, controlling the impulse of pressing the digit itself. Anchoring is measured by high price bands choices after being primed with a high number for some other product;
(2) Tunneling, through the relative valuation of the scarce resources in simple trade-offs relative to the valuation of a non-scarce resource in the same trade-off and through word search games, in which subjects must correctly identify whether or not they heard specific words in a sequence of words narrated with audio distortion. Sensitivity to framing, defined as as disagreement between subject’s decisions to go to a different location to buy or get resources, in each case, varying the baseline value/quantity from low to high;
(3) Potential demand for insurance and/or credit, measured by subjects' willingness to listen to information about offers of these products (an indicator variable, and an intensity variable that expresses how long subjects were willing to listen to the recorded information).
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Experimental Design (Public)
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Before
When farmers start making production-related decisions, but before uncertainty is resolved – in early March –, we will provide two randomly assigned treatments. First, we will enroll 1,000 farmers in Government-subsidized insurance (Treatment 1). Second, half our subjects will be randomly assigned to a drought-related message at the begging of each automated voice call (interactive voice response unit, IVR) through which we run the survey (Treatment 2), while the others will listen to neutral message.
We expect the drought-related message to prime farmers about water scarcity, making water top-of-mind with a higher likelihood for uninsured farmers. In principle, insurance should shield farmers’ psychology from the scarcity environment (at least partially).
Table 1 – Experimental design
Insured Not insured
Neutral message Treatment 1 Control group
Drought message Treatment 1 x Treatment 2 Treatment 2
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Half of our subjects will be randomly assigned to a drought-related message at the begging of each automated voice call (interactive voice response unit, IVR), while the others will listen to neutral message. We randomize at the individual level at each call and wave (for a total of 24 experiments, since we have 6 call per wave, and 4 monthly waves, between March and June).
We expect the drought-related message to prime farmers about water scarcity, making water top-of-mind. The effects of the treatment on outcomes will be benchmarked against the effects of real rainfall shocks, and compared to the effects of distance to payday of Bolsa Família.
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Additional Keyword(s)
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Before
insurance, mental bandwidth
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cognitive load, mental bandwidth
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Keyword(s)
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Agriculture, Environment And Energy, Finance
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Agriculture, Environment And Energy
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