The “New” Science of Scarcity

The puzzle with the “development puzzle” is we’ve been asking the wrong questions. Or rather, asking questions in the wrong way. One of the largest innovations in engineering in the last century has been “fault tolerant engineering”; the idea of designing machines and products to minimize the potential mistakes humans may make. This innovation has been HUGE! Surprisingly this innovation has yet to take hold in policy making. We humans are incredibly apt to make mistakes. It is time we designed policies that anticipate the potential mistakes humans make, so that when people make these mistakes, it doesn’t hurt them (or kill them).

The new puzzle is, “this shit is REALLY complicated” as says, Sendhil Mullainathan, behavioral economist and Professor of Economics at Harvard University, taking about considering behavior when designing social policies and programs. “The Behavioral Economics of Extreme Poverty”, his presentation on the research on the “new” science of scarcity and mental bandwidth at the Center for Global Development in Washington DC.

(Note: Don’t be frightened by the length of the video. The actual presentation is only about 30 minutes, the rest is a rather technical panel session discussing the uses (and misuses) of behavioral interventions and the limits of cash transfers.)

For those of you who see this video simply as an appetizer, Sendhil Mullainathan and Saugato Datta (Vice President at Ideas 42 and panel session participant in the above video) recently published a paper entitled: Behavioral Design: A New Approach to Development Policy. It is a good paper and really points to the importance of considering behavior when designing policies and programs.

Successful development programs—like other kinds of programs—rely on people to behave and choose in certain ways (see Mullainathan, 2005). For schools to be effective, parents must ensure their children show up. For vaccination programs to work, parents must bring their children to vaccination stations. For new inventions—whether insecticide-treated bed-nets, smokeless indoor stoves, or new seeds—to provide benefits, people must adopt and use them. Similarly, people’s health depends on the healthcare available to them. But for this care to be effective they must also do certain things. They must make prenatal visits. They must adhere to drug regimens. They must feed their children effectively. They may need to clean the water they drink.

Behavior thus affects whether the provision of schools, healthcare, improved seeds, or other technologies have the effect they are intended to have. Because behavior matters so much, programs work better when they are designed to match people’s actual psychology, with due consideration to the way they make decisions. Even programs based on sound medicine, agronomy, or education science can fail if their design makes the wrong assumptions about behavior. There is thus enormous scope to apply behavioral design to development programs.

Behavioral economics affects program design in three steps. First, it changes how we diagnose problems. For example, when we see parents failing to vaccinate their child we may be tempted to conclude that they do not understand the value of vaccination. Behavioral economics forces us to consider another possibility: they want to vaccinate, they understand the benefits, but they don’t get around to doing it. Vaccination may be one of many behaviors, such as savings or going to the gym, where what we do fails to match up with what we want to do. Second, it changes how we design solutions to problems. In some cases it may suggest that something as simple as a reminder can have an unreasonable impact on behavior. In others it may suggest a different way to offset our tendency to plan our spending poorly. Finally, it changes how we define the scope of the problem. Problems we overlooked may suddenly become interesting ones to solve. We often focus on access (“Make sure people get the drugs they need at low cost”). Behavioral economics points us toward important problems that remain even after access is solved (“Make sure that people actually take the drugs they are given”), and provides ideas about how to tackle them.

Most of this stuff is also in an excellent (relatively) new book: Scarcity: Why Having Too Little Means So Much by Sendhil Mullainathan and psychologist Eldar Shafar.

1 thought on “The “New” Science of Scarcity

  1. Pingback: Development and Behavioral Economics [Overview] | Jeff Bloem

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