Higher Aspirations, Less Investment? Some New Experimental Evidence

New research by David McKenzie, Aakash Mohpal, and Dean Yang finds that exogenously increased financial aspirations lead to less borrowing and business investments two years later.

This finding is consistent with existing evidence, using observational data, of an inverted U-shaped relationship between the aspirations gap and ‘future oriented’ behavior such as investments (by me), education spending (by Phillip Ross), on saving (by Janzen et al.), and existing theoretical work (by Genicot and Ray). It is an important finding because while aspirations may be an important factor that can lead to increased ‘future oriented’ behavior, increasing aspirations by themselves may not necessarily be beneficial if setting aspirations ‘too high’ can lead to frustration and possibly a behavioral poverty trap.

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