Daily Decisions: Behavioral Economics among the Rural Poor

The coin flip. From determining the kickoff in American football to deciding who gets the last mandazi (doughnut) in Kenya, coin flipping is a practice that crosses cultures. But what if flipping a coin decided your financial future?

During the pilot phase of the Business Decisions Study, Village Enterprise business owners participated in a series of coin flipping exercises to measure their perception of risk. During data collection led in Bondeni, Kenya, Enumerator Patrick Mukanzi presented business owners with the following two hypothetical options. Option A—Village Enterprise gives you 300 shillings ($3.00 US) upfront. Option B—you flip a coin; if it lands on heads, you receive 600 shillings ($6.00 US) but if it lands on tails, you receive nothing. Business owners were then asked to select one of the options.

Coin flipping is just one of the exercises business owners participated in as a part of the Business Decisions Study, a multi-year study that is designed to help our team better understand how our business owners make decisions. Business owners also participated in individual interviews and participatory ranking exercises which aimed to provide our team with insight on such topics as personal motivation, business selection, financial priorities, conservation, business practices, and risk assessment.

But why do we care about how our business owners make decisions in the first place? It is the job of our Business Mentors to train and advise our business owners on common business questions: What business should I select? What business will be the most profitable? Which business is the least risky? By understanding how our business owners make decisions on a daily basis, our Business Mentors can tailor their trainings to maximize the benefits for our business owners. Results from the study will also allow our team to develop more tools that provide our business owners with useful business selection information that will help them make more informed business choices.

As Program Manager Kate Reott shared, “With information from this study we can improve the way we train and advise our business owners on elements of business decision making and business management, but also contribute to ongoing conversations about how to serve this demographic within the development sector at large. Village Enterprise is an industry leader in targeting the ultra-poor for our graduation program, so we are in a unique position to innovatively change the way our sector serves the very bottom of the pyramid.”
Village Enterprise business mentor teaches a group of womenhand holding a coin

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