The effect of a financial booster on cognitive functioning and decision-making on the poor

• Main Authors: Teo, Xuan Ting, Soh, Li Ming, Lee, Hwee Leng
• Other Authors: He Tai-Sen
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2020
• Subjects: Social sciences::Economic theory
• Online Access: https://hdl.handle.net/10356/139201
• Institution: Nanyang Technological University

This paper examines the effect of a financial booster of $20 on the cognitive function and risk preference of the poor. We conducted a field experiment on subjects who apply for financial assistance under ComCare Assistance Scheme. The subjects were randomly assigned to either the low condition group, where they were given a starting amount of $5; or to the high condition group, where they were given a starting amount of $20. Contrary to the previous finding, a financial booster does not improve cognitive functioning and make the subjects in the high condition more risk averse. Additional experiments were conducted to refute the alternative explanation that subjects’ age, employment status and education levels contribute to the treatment effect. This reinforces the interpretation of our main finding that individuals need to be under financial stress when receiving financial booster to influence their risk preference.