Worries of the poor: The impact of financial burden on the risk attitudes of micro-entrepreneurs

We randomly expose the owners of small retail businesses in Vietnam to scenarios that trigger financial worries and study the effect of this intervention on risk attitudes using an incentive-compatible elicitation method. We find that entrepreneurs exposed to financial worries behave less risk-averse than those assigned to a placebo treatment. This effect is stronger for owners of shops which are smaller and those less exposed to large income shocks in their everyday business. We further show that the effect of financial worries on risk attitudes is not explained by changes in the cognitive functioning of the treated. The findings are consistent with previous results from laboratory experiments with students in developed countries. As such, the paper provides evidence for the external validity of these findings in the context of micro-entrepreneurship in a developing country and points to financial worries as one understudied psychological channel for the effect of material deprivation on decision-making.