Information avoidance: Our findings, together with additional survey evidence, suggest that behavioral biases inhibit the adoption of improved practices, and are consistent with inattention as a key driver of under-adoption

Why Businesses Fail: Underadoption of Improved Practices by Brazilian Micro-Enterprises. Priscila de Oliveira, Nov 2022. https://www.prisciladeoliveira.net/#research

Abstract: Micro firms in low and middle income countries often have low profitability and do not grow over time. Several business training programs have tried to improve management and business practices, with limited effects. We run a field experiment with micro-entrepreneurs in Brazil (N=742) to study the under-adoption of improved business practices, and shed light on the constraints and behavioral biases that may hinder their adoption. We randomly offer entrepreneurs reminders and micro-incentives of either 20 BRL (4 USD) or 40 BRL (8 USD) to implement record keeping or marketing for three consecutive months, following a business training program. Compared to traditional business training, reminders and micro-incentives significantly increase adoption of marketing (13.2 p.p.) and record keeping (19.2 p.p.), with positive effects on firm survival and investment over four months. Our findings, together with additional survey evidence, suggest that behavioral biases inhibit the adoption of improved practices, and are consistent with inattention as a key driver of under-adoption. In addition, our survey evidence on information avoidance points to it as a limiting factor to the adoption of record keeping, but not marketing activities. Taken together, the results suggest that behavioral biases affect firm decisions, with significant impact on firm survival.