Review of Behavioral Economics > Vol 6 > Issue 4

Risk Preference and Microfinance Default: Evidence from a Field Experiment in Mekong Delta

Quang Thong Truong, University of Economics Ho Chi Minh City, Vietnam, Quang Nguyen, University of Economics Ho Chi Minh City, Vietnam and Middlesex University London, UK, Duc Can Vu, University of Economics Ho Chi Minh City, Vietnam, Tien Dung Pham, IDR – UEH, Vietnam, Thanh Binh Phan, Nguyen Tat Thanh University, Vietnam,
 
Suggested Citation
Quang Thong Truong, Quang Nguyen, Duc Can Vu, Tien Dung Pham and Thanh Binh Phan (2019), "Risk Preference and Microfinance Default: Evidence from a Field Experiment in Mekong Delta", Review of Behavioral Economics: Vol. 6: No. 4, pp 401-417. http://dx.doi.org/10.1561/105.00000112

Published: 29 Nov 2019
© 2019 Q. T. Truong, Q. Nguyen, D. C. Vu, T. D. Pham and T. B. Phan
 
Subjects
 
Keywords
JEL Codes: C93G21O12O16
Credit RationingRiskPreferenceMicrofinanceDefault
 

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In this article:
1. Introduction
2. Related Literature
3. Methodology and Data
4. Summary Statistics
5. Regression Analysis
6. Conclusions
Appendix 1. Experiment Protocol and Instruction
Appendix 2. Choices from the Risk Preference experiment
Appendix 3. Salinity level by province
References

Abstract

This study aims to explore the link between risk preferences and microfinance default behavior. An interesting aspect of our study is to conduct a field experiment with 164 Vietnamese microfinance borrowers. We first elicit risk preferences for each individual using real payments. We then link the elicited individual’s risk preferences with their default behavior. The results show that defaulting borrowers are more likely to be risk averse rather than risk loving. Our study offers important implications to microfinance policy makers in developing countries.

DOI:10.1561/105.00000112