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Biased Beliefs and Product Choice: Theory and Evidence from Zambia

Jie Bai, Harvard Kennedy School

David Sungho Park, KDI School of Public Policy and Management

Ajay Shenoy, U.C. Santa Cruz

This document is an output from the research initiative ‘Private Enterprise Development in Low-Income Countries’ (PEDL), a programme funded jointly by the by the Centre for Economic Policy Research (CEPR) and the Foreign, Commonwealth and Development Office (FCDO), contract reference PEDL_LOA_9507_Shenoy. The views expressed are not necessarily those of CEPR or FCDO.

This project was supported in part by a grant from the Institute for Social Transformation at the University of California, Santa Cruz.

We also gratefully acknowledge financial support from:

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Why are some firms more productive than others?

Technology

Recipe for outputs
Information about how to produce

Management

Motivating workers
Monitoring performance
Financial planning
Product choice, sourcing, and pricing

Does imperfect information / misperception about demand, suppliers, and costs lower productivity?

Do misperceptions persist through a “learning-by-doing” channel?

More productive firms 🡺 Better livelihoods for entrepreneurs

Misperceptions 🡺 high costs, unsold inventory 🡺 lost opportunities for highly marginalized people

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This Project

Context: Single-establishment shops/stands in Lusaka, Zambia

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This Project

Context: Single-establishment shops/stands in Lusaka, Zambia

Identify similar shops, and products stocked by some but not others
Survey evidence: how do beliefs about demand and costs for those who do stock compare to experience of those who do not?
Randomized trial: risk-free chance to stock the product
Structural model of sourcing and selling with noisy signals and learning by doing/stocking
Next Project: Design and introduce an app that pools data from different shops to automatically make recommendations

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Outline

Motivation
Design: Identifying and Learning about “Niche” products
Survey Results
RCT Design

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Goal: Choose Very Specific Products Stocked by Some, but Not All

“Niche” products

Stores similar in main products
But niche product is only stocked by ~30%

Can compare onions to onions

Harmonize goods and units
Prices are comparable
Supplier to one shop can supply another

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Existing Data: From Lusaka Productivity Study

Sept 2022: Screener (3000 shops)

Locations
Images of Inventory

Jan—Mar 2023: In-Person Survey (1000 shops)

Sourcing (regular suppliers and markets)
Main products
Niche products
Lots more….

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Identifying Product Choice

50202309 - Sport or energy drink
50202310 - Spring or mineral water
50202305 - Fresh juice
50202306 - Soft drinks
50131701 - Fresh milk or butter products

2 Zambia-based enumerators working separately & reconciled by third

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Identifying Product Choice

47131811 - Laundry products
53131602 - Hair care supplies
53131607 - Hand or body lotion or oil
50161509 - Natural sugars or sweetening products
50151513 - Edible vegetable or plant oils
50171551 - Cooking or table salt
53131641 - Petroleum jelly
50221300 - Flour and milled products
51171608 - Glycerine
50192902 - Shelf stable plain pasta or noodles
53102305 - Infant diapers
50193103 - Gravy mix
50181709 - Baking supplies
50201714 - Non dairy creamers
51142400 - Drugs used for vascular and migraine headaches
50201709 - Instant coffee
91101601 - Facial or body treatments
26111700 - Batteries and cells and accessories
53131619 - Cosmetics
50201710 - Leaf tea
12131706 - Matches
24111503 - Plastic bags

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Vectorization, Step 1: Full-Dimensional Dummies

stock1	0
stock2	0
…
stock12	1
stock13	0
…
stock15	0
stock30	1
stock31	0
stock32	0
stock33	0
stock34	0
stock35	0
stock36	1

47131811 - Laundry products
53131602 - Hair care supplies
53131607 - Hand or body lotion or oil
50161509 - Natural sugars or sweetening products
50151513 - Edible vegetable or plant oils
50171551 - Cooking or table salt
53131641 - Petroleum jelly
50221300 - Flour and milled products
51171608 - Glycerine
50192902 - Shelf stable plain pasta or noodles
53102305 - Infant diapers
50193103 - Gravy mix
50181709 - Baking supplies
50201714 - Non dairy creamers
51142400 - Drugs used for vascular and migraine headaches
…

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Vectorization, Step 2: Dimensional Reduction through Principal Component Analysis

Credit: Casey Cheng, Towards Data Science

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Vectorization, Step 2: Dimensional Reduction through Principal Component Analysis

com1	3.426393
com2	-1.07705
com3	-0.66823
com4	-0.09338
com5	-0.90672

stock1	0
stock2	0
…
stock12	1
stock13	0
…
stock15	0
stock30	1
stock31	0
stock32	0
stock33	0
stock34	0
stock35	0
stock36	1

What are the component axes?

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Clustering Shops by Product Choice

Credit: java T point

Challenges

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Chosen Clusters and Products

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Survey Modules: Getting at Why They Stock/Don’t Stock

Stock?

What varieties?

yes

For each…

Qty Sold

Price

Cost

Suppliers

Markets

Customers ask?

Other shops stock?

Know where to buy?

Beliefs:

What would you charge?

What would it cost?

Belief distribution: sales

We know where they already source

Better place to source?

Accurate?

Know average (time) cost of travel

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Outline

Motivation
Design: Identifying and Learning about “Niche” products
Survey Results
RCT Design

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Stock vs. Not Stock

		At Baseline
At screening		NO STOCK	YES STOCK	No response	Total
	NO STOCK	283	169	13	465
	YES STOCK	57	177	6	240
	Total	340	346	19	705

Can’t be explained away by physical location or size of inventory

Significant predictor: How many new products have you introduced in the past year?

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Among those who DON’T STOCK:�Know of the Product and Where to Source

63% say a customer asked about the good

19% daily
47% weekly
25% monthly

74% know of similar shops that stock the product
302 out of 340 know some markets where they can source the product.

241 are already visiting that market for their main goods

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But They Expect Lower Markups than are Realized by Shops that DO STOCK

If you did start stocking this product, what do you expect would be the order price for one ${niche_prod_unit}?
And what would you charge customers for one ${niche_prod_unit}?

What is the sales price per unit?
When you buy from this source: What is the order price per unit?

Can’t be explained by location!

Beliefs about target product can’t be explained by markup on main products

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Outline

Motivation
Design: Identifying and Learning about “Niche” products
Survey Results
RCT Design

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RCT: Objectives

Treatment: 100% subsidy to stock the product

Do shops who take up the product earn higher returns than on their existing portfolio of products (adjusting for travel costs) ?

If yes: They could earn higher returns by stocking the product

Do they continue stocking [after incentives run out]?

If yes: They update beliefs

Are shops given more time to experiment more likely to keep stocking?

If yes: learning takes time, and we can estimate the rate of learning

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Preliminary Design: Intervention

Control

110

1-week subsidy

110

2-week subsidy

110

Recommend & Offer Reimbursement

Survey:

Ask about 3 goods (including target good)
Do NOT specify which is the target good

1 Week later: return to reimburse purchases

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Preliminary Design: Data Collection

Month 1

Month 2

Month 3

Pre-Intervention Survey

Intervention

Each Month

Week 1:

Mystery shopper

Week 2:

Mystery shopper

Phone survey

Week 3:

Mystery shopper

Week 4:

Mystery shopper

Phone survey

Monthly survey: overall sales, customers, assets, prices of main products

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Summary

Research questions:

Does imperfect information / misperception about demand, suppliers, and costs lower productivity?
Do misperceptions persist through a “learning-by-doing” channel?

Descriptive evidence

Shops that stock similar products: still differ in whether they stock some products
Can’t be explained by location or transit costs
Shops that don’t stock have pessimistic beliefs

Next stage: RCT to allow subsidized experimentation

Do shops that stock earn similar returns?
Can shops update their beliefs about returns, and make new choices?

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Principal Component 1: Store vs. Veg. Stand

47131811 - Laundry products (laundry deterge
50202304 - Shelf stable juice
50181905 - Sweet biscuits or cookies
50202306 - Soft drinks
53131607 - Hand or body lotion or oil
50161509 - Natural sugars or sweetening prod
53131641 - Petroleum jelly
53131608 - Soaps
50151513 - Edible vegetable or plant oils (e
14111704 - Toilet tissue / toilet paper
50171830 - Dipping sauces or condiments or s
53131602 - Hair care supplies
50202310 - Spring or mineral water
47131810 - Dishwashing products (dish soap,
53131615 - Feminine hygiene products
53131502 - Toothpaste
50192402 - Nut or mixed spreads (e.g. peanut
50192902 - Shelf stable plain pasta or noodl
51171608 - Glycerine
50202300 - Non alcoholic beverages

50406500 - Tomatoes
50405300 - Onions
50407000 - Nominant vegetables
50405600 - Peppers
50421800 - Dried beans
50403000 - Chinese cabbages
50403400 - Cucumbers
50402300 - Cabbages
50403500 - Eggplants
50407030 - Ginger root
50405700 - Potatoes
50425300 - Dried peanuts
50401824 - Green beans
50402500 - Carrots
50304100 - Lemons
50405200 - Okras
50305000 - Oranges
50301500 - Apples
50424100 - Dried herbs
99999909 - Edible soil / stones

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Principal Component 2: Food vs. Not Food

53131604 - Hair combs or brushes
53131629 - Makeup kits
54101604 - Earrings
53131638 - Nail polish
53102513 - Headbands
99999908 - Clothespin / clothes peg
54111704 - Watch straps or bands or bracelet
53121804 - Makeup or manicure cases
53131630 - Lip balm
53102402 - Socks
52152000 - Domestic dishes and servingware a
52121700 - Towels
52151700 - Domestic flatware and cutlery
60122900 - Beads or beading accessories
52151807 - Domestic stock pots
48101905 - Food service cups or mugs
53131507 - Toothpicks
24112602 - Jars
54101602 - Necklaces
52152200 - Dishwashing and dish storage acce

50181905 - Sweet biscuits or cookies
50202304 - Shelf stable juice
50151513 - Edible vegetable or plant oils (e
50131702 - Shelf stable milk or butter produ
50161509 - Natural sugars or sweetening prod
50192109 - Crisps or chips or pretzels or mi
47131811 - Laundry products (laundry deterge
53102305 - Infant diapers
50151514 - Edible vegetable or plant fats
50202306 - Soft drinks
50131701 - Fresh milk or butter products
53131502 - Toothpaste
50171830 - Dipping sauces or condiments or s
50181901 - Fresh bread
14111704 - Toilet tissue / toilet paper
50192402 - Nut or mixed spreads (e.g. peanut
50161814 - Sugar or sugar substitute candy
50192902 - Shelf stable plain pasta or noodl
50202310 - Spring or mineral water
50131600 - Eggs and egg substitutes

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Principal Component 3: Cosmetics vs. Food

53131638 - Nail polish
53131630 - Lip balm
53121804 - Makeup or manicure cases
53131629 - Makeup kits
53131604 - Hair combs or brushes
54101604 - Earrings
54101602 - Necklaces
53131602 - Hair care supplies
53131620 - Perfumes or colognes or fragrance
53102513 - Headbands
99999901 - Hair extensions / wigs
31201610 - Glues
53131625 - Hair or beard nets
53121606 - Lipstick cases
54111704 - Watch straps or bands or bracelet
60122909 - Plastic beads
53131607 - Hand or body lotion or oil
44121618 - Scissors
60122907 - Assorted or decorative beads
60141000 - Toys

50406500 - Tomatoes
50221300 - Flour and milled products
50405300 - Onions
50121538 - Shelf stable fish (e.g. dried fis
99999907 - Mealed vegetable (e.g. soya mince
50151513 - Edible vegetable or plant oils (e
50407000 - Nominant vegetables
50192902 - Shelf stable plain pasta or noodl
50405600 - Peppers
50421800 - Dried beans
50192402 - Nut or mixed spreads (e.g. peanut
50221201 - Ready to eat or hot cereals
50192401 - Jams or jellies or fruit preserve
50202304 - Shelf stable juice
50171832 - Salad dressing or dips
50171551 - Cooking or table salt
50171830 - Dipping sauces or condiments or s
47131810 - Dishwashing products (dish soap,
50202309 - Sport or energy drink
50201709 - Instant coffee

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Principal Component 4: Pharmacy vs. Food

51102000 - Antitubercular drugs
51161800 - Cough and cold and antiallergy pr
51102300 - Antiviral drugs
51142400 - Drugs used for vascular and migra
51171900 - Antiulcer and related gastrointes
51101900 - Antimalarial drugs
51241200 - Dermatologic agents (e.g. medicin
51102700 - Antiseptics
53131622 - Condoms
11121802 - Cotton
51191905 - Vitamin supplements
53131607 - Hand or body lotion or oil
53131608 - Soaps
53131620 - Perfumes or colognes or fragrance
53102504 - Gloves or mittens
53131616 - Para pharmaceutical creams or lot
53131606 - Deodorants
53131615 - Feminine hygiene products
53131613 - Skin care products
51101800 - Antifungal drugs

50171551 - Cooking or table salt
50161509 - Natural sugars or sweetening prod
50121538 - Shelf stable fish (e.g. dried fis
50221300 - Flour and milled products
50181905 - Sweet biscuits or cookies
50405300 - Onions
50192109 - Crisps or chips or pretzels or mi
50131600 - Eggs and egg substitutes
99999907 - Mealed vegetable (e.g. soya mince
50406500 - Tomatoes
50151513 - Edible vegetable or plant oils (e
50192902 - Shelf stable plain pasta or noodl
50202304 - Shelf stable juice
50421800 - Dried beans
50405600 - Peppers
50161814 - Sugar or sugar substitute candy
50192402 - Nut or mixed spreads (e.g. peanut
50181709 - Baking supplies
50131702 - Shelf stable milk or butter produ
50171830 - Dipping sauces or condiments or s

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Principal Component 5: Food vs. Convenience

50405300 - Onions
50405600 - Peppers
50406500 - Tomatoes
50421800 - Dried beans
50403400 - Cucumbers
50407000 - Nominant vegetables
50425300 - Dried peanuts
50121538 - Shelf stable fish (e.g. dried fis
50407030 - Ginger root
50304100 - Lemons
50305000 - Oranges
50221300 - Flour and milled products
50402500 - Carrots
50301500 - Apples
50401824 - Green beans
99999907 - Mealed vegetable (e.g. soya mince
50403500 - Eggplants
50171551 - Cooking or table salt
50402300 - Cabbages
50301700 - Bananas

53131602 - Hair care supplies
99999901 - Hair extensions / wigs
53131630 - Lip balm
53121804 - Makeup or manicure cases
53131638 - Nail polish
53121606 - Lipstick cases
54101604 - Earrings
53131629 - Makeup kits
53131620 - Perfumes or colognes or fragrance
54101602 - Necklaces
91101601 - Facial or body treatments
53131607 - Hand or body lotion or oil
53131604 - Hair combs or brushes
53131613 - Skin care products
53131608 - Soaps
53131606 - Deodorants
54111704 - Watch straps or bands or bracelet
51171608 - Glycerine
53102303 - Underpants
53131616 - Para pharmaceutical creams or lot

Back

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