Strategy and Coordination in Risky Household Decisions (Job Market Paper)
Abstract: Do spouses successfully coordinate risk-taking decisions in the household? This paper uses a lab-in-field experiment between married couples in Bangladesh to show that most people hold mistaken beliefs about their spouse’s risk-taking behavior. In a sequential lottery-choice game husbands and wives each selected a lottery while sharing the total winnings from both. Under imperfect information about their spouse’s choice, only about one in four subjects successfully coordinate their choice with their spouse’s choice so as to achieve their intended risk exposure level for the household. Biased beliefs about the spouse’s choice, led 23% of subjects to accept excessively risky lotteries and 24% to sacrifice profitable opportunities. Coordination failures are particularly pronounced when one spouse actively attempts to counter or ignore the other’s choice, a behavior typically shown by men. Variation in non-cognitive skills helps explain this pattern: personality traits systematically predict whether spouses accommodate or counter their partner’s decisions. Moreover, when one spouse exhibits countering behavior, the other often mirrors it, amplifying coordination failure within the household. Linking experimental behavior to real-world outcomes, I document evidence of asymmetric information between spouses regarding household savings, physical assets, and outstanding loans. Coordination errors in the experiment predict biased beliefs about a spouse’s savings for different purposes, like investment into children and emergency needs. Crucially, larger coordination errors significantly increase the likelihood that households were unable to cope with adverse shocks in the past twelve months using available resources, forcing them to sell productive assets or resort to migration