Strategy and Coordination in Risky Household Decisions (Job Market Paper)

Abstract: In patriarchal societies, social norms restrict women’s roles within households to only certain spheres of household decision-making. This leads to asymmetric information about household resources between spouses, making coordination in decisionmaking difficult. Poor coordination in risk-taking decisions can expose households to excessive risk if a person makes risky decisions under the false impression that their spouse has sufficient assets to cover a crisis or it can cause households to sacrifice legitimate investment opportunities if both spouses are overly conservative. This study investigates whether married couples in rural Bangladesh successfully coordinate risky decisions across their respective domains. Using an artefactual experiment, we elicit individual risk preferences and employ a two-stage lottery-choice game to examine joint decision-making. The results indicate widespread coordination failures: only a quarter of couples successfully coordinate risk-taking decisions, while most either assume excessive risk or become overly conservative due to misaligned beliefs about each other’s choices. Households where spouses exhibit greater divergence in individual risk preferences are more prone to coordination errors, as spouses try to counteract each other’s choice. These experimental findings align with real-world financial behaviors, as women who overestimated their husband’s risk aversion in the experiment also tended to overestimate their husband’s actual savings behavior. This study provides novel evidence on how intrahousehold information frictions contribute to inefficient risk-sharing and distort critical financial decisions, potentially affecting long-term household welfare. The findings contribute to research on strategic interactions in household decisionmaking, risk-sharing inefficiencies, and the role of gender norms in shaping financial coordination within families.

Keywords: Risk preferences, intrahousehold decision-making, gender, spousal cooperation, lab-in-field experiment, rural households, Bangladesh

JEL Codes: C93, D13, D81, J16, O12