Do Behavioral Frictions Prevent Firms from Adopting Profitable Opportunities?

Firms frequently fail to adopt profitable business opportunities even when they do not face informational or liquidity constraints. We explore three behavioral frictions that explain inertia among individuals---present bias, limited memory, and distrust---in a managerial setting. In partnership with a FinTech payments company in Mexico, we randomly offer 33,978 firms the opportunity to pay a lower merchant fee. We vary whether the offer has a deadline, reminder, pre-announced reminder, and the size of the fee reduction. Reminders increase take-up by 15%, suggesting a role of memory. Announced reminders increase take-up by an additional 7%. Survey data reveal the likely mechanism: When the FinTech company follows through with the pre-announced reminder, firms' trust in the offer increases. The deadline does not affect larger firms, implying limited or no present bias, but does increase take-up by 8% for smaller firms. Overall, behavioral frictions contribute significantly to explaining profit-reducing firm behavior.