CEDE Seminar - Julia Seither

Both too low and too high aspirations can prevent the poor from making optimal investments. 
We test the hypothesis that the relationship between aspirations and investments is non-monotonic among urban micro-entrepreneurs in Mozambique. We document that at baseline, individuals on average aspire to increase their income by almost 5.000% over the next 10 years. Drawing on insights from existing aspirations literature, we randomize three interventions that expose individuals to local, realistic role models, support them in defining achievable goals to prevent over-shooting, or teach business skills through simple heuristics. Treated individuals decrease their aspirations in all conditions by between 16% - 25%. They also change their savings and investment behavior. More than one year after the intervention, entrepreneurs in either aspirations condition have between 90% - 120% higher business profits relative to the control group. We argue that overly ambitious aspirations are a relevant constraint to optimal investment choices that may contribute to business growth failure.