Aspirations and Financial Decisions: Experimental Evidence from the Philippines

42 Pages Posted: 29 Mar 2021 Last revised: 4 Sep 2021

See all articles by David J. McKenzie

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Aakash Mohpal

University of Michigan at Ann Arbor

Dean Yang

National Bureau of Economic Research (NBER); University of Michigan at Ann Arbor - Gerald R. Ford School of Public Policy; University of Michigan at Ann Arbor - Department of Economics

Date Written: March 2021

Abstract

A randomized experiment among poor entrepreneurs tested the impact of exogenously inducing higher financial aspirations. In theory, raising aspirations could have positive effects by inducing higher effort, but could also reduce effort if unmet aspirations lead to frustration. Treatment resulted in more ambitious savings goals, but nearly all individuals fell far short of reaching these goals. Two years later, treated individuals had not saved more, and actually had lower borrowing and business investments. Treatment also reduced belief in the amount of control over one’s life. Setting aspirations too high can lead to frustration, leading individuals to reduce their economic investments.

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Suggested Citation

McKenzie, David John and Mohpal, Aakash and Yang, Dean and Yang, Dean, Aspirations and Financial Decisions: Experimental Evidence from the Philippines (March 2021). NBER Working Paper No. w28607, Available at SSRN: https://ssrn.com/abstract=3814594

David John McKenzie (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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Dean Yang

National Bureau of Economic Research (NBER)

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