Summary

“A large portion of economic activity in low- and middle-income countries (LMICs) is driven by (micro)entrepreneurs, who face significant challenges in starting and running profitable businesses. More than half of workers in low- and lower middle-income countries run their own business, against around 10 percent in high-income countries (ILO, 2019). Around a third of these entrepreneurs are driven by necessity (e.g., running their own business as a means of providing a subsistence income), rather than opportunity (e.g., hoping to build a business that grows beyond the scope of subsistence needs). Well-documented barriers facing LMIC entrepreneurs include weak education systems that hamper human capital development, limited access to finance, poor infrastructure and information access, and weak institutions. Policy interventions have sought to respond to these challenges with often inconclusive or underwhelming results.

Insights from behavioral science can help us better understand how the complexities of the human decision-making process impact LMIC entrepreneurs and the policies aimed at supporting them. Behavioral science recognizes that people’s behavior does not only depend on internal drivers (personality, preferences) and external drivers (information, incentives, regulations), but also on the decision-making process itself, which is influenced by available mental resources, automatic thinking, social norms and relationships, and mental models. While these influences impact everyone, their importance is exacerbated by challenging living conditions, making them potentially more influential for individuals living in LMICs. The majority of entrepreneurship research and programming continues to focus on building capital and business skills, but adding a systematic focus on behavioral influences shows a broad range of potential barriers that might interfere with an entrepreneur’s decision-making process (Figure A). A deeper understanding of entrepreneurs’ decision-making context can help practitioners improve both their diagnosis of the obstacles facing entrepreneurs and the design of entrepreneurship-related policies and interventions.”