UC Berkeley

This dissertation applies behavioral economics concepts to understand key issues in firms’ and individuals’ decision making. In particular, this dissertation investigates the presence of behavioral biases on firms’ managerial decisions and on individuals’ annuitization decisions through the use of field and incentivized experiments, respectively.

In the first chapter, we run a field experiment with micro-entrepreneurs in Brazil (N = 742) to shed light on the constraints that lead to the under-adoption of improved business practices. We randomly offer entrepreneurs micro-incentives, which include reminders, deadlines and small monetary payments, to implement record keeping or marketing for three consecutive months, following a business training program. Our intervention is designed to have a significant impact on firms’ decisions only in the presence of behavioral biases. Compared to traditional business training, micro-incentives significantly increase adoption of marketing (13.2 p.p.) and record keeping (19.2 p.p.), with positive effects on firm survivaland investment over four months. Additional survey evidence is consistent with biases, such as inattention, time inconsistency and information avoidance, inhibiting the adoption of improved practices. Taken together, our results show that behavioral biases have a significant impact on firms’ managerial decisions.

In the second chapter, we study psychological biases in take-up of annuities, using an incentivized experiment with a probability-based sample (N = 3,038). Choosing an annuity was payoff-maximizing in the experiment at all prices, but take-up was incomplete and price elastic. Reformulating decisions as insurance against a “bad” outcome rather than insuranceagainst “longevity risk” did not increase take-up. Instead, we find substantial failures of contingent reasoning: participants underappreciated how annuitization mitigated the need for less-efficient means of saving for retirement. Increasing the salience of the interaction with savings decisions, or eliminating the need to think through this interaction altogether, substantially increased annuity take-up.