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 chose one lottery and shared the total winnings. Under imperfect information about their spouse’s choice, only about one in four subjects successfully coordinate their choice their spouse’s choice so to achieve their intended lottery portfolio for the household. Biased beliefs about the spouse’s choice, led 23% of subjects accept excessively risky lotteries and 24% to sacrifice profitable opportunities out of over-caution. Larger biases occur when a spouse actively counters or ignores a subject’s choice, a behavior typically shown by men. As a result, household portfolios more often reflect men’s risk preferences. When one spouse exhibits this tendency, the other often mirrors it, compounding coordination failure within the household. Participants who mispredicted in the experiment also held biased beliefs about their spouse’s real savings and asset holdings in the household, highlighting how intrahousehold information frictions contribute to inefficient risk-sharing and distorted financial decisions.