CAREER: Field Experiments in Credit, Insurance, and Behavioral Economics

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The purpose of this study is to design and implement unique experimental methodologies that test theoretical issues in financial markets for the poor in developing countries, behavioral economics and psychology, and non-profit fundraising in the United States. The field experiments are designed to reveal fundamental elements of individual and entrepreneurial decision-making and market microstructure. This study comprises three projects, each motivated by both theoretical and policy issues: a group versus individual liability experiment in the Philippines; an information asymmetry experiment on health insurance in the Philippines; and experiments on psychology and economics using non-profit fundraising in the United States. There is also an educational component of this study. A new doctoral course is developed at Yale University, sponsored by the Institute for Social and Policy Studies (an inter-disciplinary unit), on field experiments in social sciences, as well as field support to encourage graduate students to incorporate experimental methodologies into their dissertation work.Several field experiments are designed specifically to shed insight into both theoretical and policy questions in development economics and behavioral economics. Regarding development economics, there are many existing theories on financial markets (both credit and insurance) for the poor in developing countries. Yet, relative to the theory, there is little clean empirical evidence. Particularly for the poor, little is known about how critical product design issues, such as premium rates, liability rules and access to savings, affect individual behavior. Therefore, field experiments will be designed to answer several specific questions, including: (1) Is adverse selection present, and if so how extensive is it, in health insurance markets in the Philippines? (2) Is demand elastic with respect to premiums for micro-insurance? (3) Do dynamic incentives help to mitigate moral hazard in insurance markets? (4) Does group liability help enforce and monitor lending contracts for the poor, compared to individual liability? Another set of experiments focuses on behavioral economics, specifically examining the importance of finding from psychology and behavioral economics under competitive pressures in the real world: (5) Do psychological manipulations effective in the laboratory matter under competitive pressures in the real world? Aside from the intellectual merit of the research questions being answered, the projects will help develop standards and practices for researchers and practitioners to use field experiment methodologies to test important issues in development and behavioral economics. This study also includes an important combination of behavioral and development economics. The research examines how insights from psychology can help clarify our understanding of how poor individuals in developing countries make credit and savings decisions. Such information is critical for the development of effective, welfare-improving public policies for credit and savings markets.Broader Impacts: Field experiments to date have focused largely on program evaluation work. On a methodological level, this study puts forth a series of experiments that can be thought of as second generation experimental economics: employ the techniques and theoretical underpinning typically found in laboratory experiments to motivate and design natural field experiments. This attention to theory in the design of field experiments is new and growing, and can apply to fields throughout economics (and other social sciences). On a practical level, the specific issues examined are important for understanding financial markets for the poor and behavioral economics. The specific knowledge sought here should have implications for development policymakers, as well as academic theoreticians and empiricists looking for validation of competing models of financial markets and human behavior.