Keeping Up With the Joneses: Economic Impacts of Overconfidence in Micro-Entrepreneurs

Last registered on April 05, 2021
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Pre-Trial

Trial Information

General Information

Title
Keeping Up With the Joneses: Economic Impacts of Overconfidence in Micro-Entrepreneurs
RCT ID
AEARCTR-0007452
Initial registration date
April 02, 2021

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 05, 2021, 10:19 AM EDT

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

Locations

Country
Mozambique
Region

Primary Investigator

Name
Julia Seither
Affiliation
Universidad del Rosario
Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status
Completed
Start date
2016-07-01
End date
2017-12-31
Keywords
Behavior, Firms & Productivity, Labor
Additional Keywords
Overconfidence, Cognitive Biases, Firm Performance.
JEL code(s)
D22, D91, O12
Secondary IDs
Abstract
This paper investigates the effects of incorrect beliefs over relative firm performance on micro-firm outputs through a randomized field experiment in Mozambique. At baseline, 76% of firm owners in the bottom of the distribution are overconfident about their firm's performance. The estimates reveal that correcting these beliefs through a simple, easily scalable information experiment closes the performance gap between treated firms in the bottom of the distribution at baseline and average and top firms by almost 43%. Moreover, the treatment increases the time a firm owner allocates to her business, improves strategic cooperation with the most important business partners, and affects the pricing strategy of treated firm owners. My results suggest that incorrect beliefs about relative performance are a binding constraint to firm growth that have large implications for managerial behavior and firm outcomes.
External Link(s)

Registration Citation

Citation
Seither, Julia. 2021. "Keeping Up With the Joneses: Economic Impacts of Overconfidence in Micro-Entrepreneurs." AEA RCT Registry. April 05. https://doi.org/10.1257/rct.7452-1.0
Sponsors & Partners
Experimental Details

Interventions

Intervention(s)
During the treatment visit, firm owners in the treatment group received information about their relative firm outcomes - specifically their revenues reported during the baseline survey. The rankings were based on each individual's sector of firm activity and included all market vendors in the total sample, independent of market location. A ranking consists of ten firms. The ranking was distributed to 192 (out of a total experimental sample of 323) individuals between November and December 2016. There was minimal framing on how an individual could improve her ranking. Individuals did not keep their ranking sheet and there was no indication that they would be ranked again.
Intervention Start Date
2016-11-01
Intervention End Date
2016-12-31

Primary Outcomes

Primary Outcomes (end points)
Firm Outcomes: survey and monitored revenues as well as monthly profits.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Main Mechanisms: time allocation towards business, pro-sociality towards business network, pricing strategy

Secondary Mechanisms: management practices such as bookkeeping and business measures and investment behavior such as demand for loans and investments in product diversity.
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
The field experiment was designed around three main objectives: i) to obtain descriptive evidence on the existence of overconfidence bias in the context of micro-entrepreneurs, ii) to estimate the causal effect of correcting beliefs on firm outcomes and thus provide evidence on the cost of non-cognitive biases such as overconfidence on firm growth, and iii) to shed light on the underlying mechanisms that might drive changes in firm outcomes. Objectives i) and iii) are achieved through detailed surveys at different points in time. Causal identification of the impact of non-cognitive biases on firm outcomes is achieved through random assignment to either a control group or a treatment group. All firm owners in the treatment group received information about their relative performance compared to peers in the same sector. Those randomly assigned to the treatment were additionally split into two sub-groups: one with ranking information only and one with additional information about peer characteristics. The control group did not receive any information but was visited at the same time as the treatment groups with a short survey.
Experimental Design Details
Randomization Method
Randomization done in office by computer.
Randomization Unit
Individual randomization on firm owners.
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
323 firm owners.
Sample size: planned number of observations
323 firm owners.
Sample size (or number of clusters) by treatment arms
192 in treatment group
131 in control group
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
Supporting Documents and Materials
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number
Analysis Plan

Post-Trial

Post Trial Information

Study Withdrawal

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials