The Origins of Optimism: A Lab-in-the-Field Experiment among Microfinance Clients in Bolivia

Francesco Cecchi, Elske Voermans and Robert Lensink

Economic Development and Cultural Change, 2023, vol. 72, issue 1, 389 - 421

Abstract: People often underestimate the time it takes to complete a task. We investigate the causes of such overoptimism through a lab-in-the-field experiment with microfinance clients in Bolivia testing the contribution of uncertainty, personality, and financial incentives. Our results are consistent with theories of time-inconsistent beliefs postulating the existence of anticipatory benefits, where the incentives at stake shape optimism. Correlational evidence also suggests that optimists have greater real-life outstanding debt. We propose that time preference models be adjusted to include anticipatory utility and that the role of repayment incentives in shaping overoptimistic expectations of microfinance clients should not be overlooked.

Date: 2023
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