Risk preference, investment decision, and household welfare: Evidence from a microcredit experiment in Bangladesh

Recent microcredit field experiments document low microcredit uptake and heterogeneous treatment effects. We posit the risk preference of households as a possible explanation. In a randomized field experiment in Bangladesh, we find that, in response to a microcredit intervention, household risk preference is significantly associated with microcredit uptake and its outcomes. Households with a more risk-seeking attitude are more likely to take microcredit, rent more land under fixed-rental contracts than share-cropping, adopt more technology, and expand businesses; these responses are accompanied by higher total income. In contrast, risk-averse households did not show such gains. Our results suggest that risk preference is an important dimension of heterogeneity in microcredit uptake and responses to the intervention.