What is a “Gustibus Multiplier”?
That is what I thought when I read the title of Michael Carter’s recent paper in Agricultural Economics entitled, “What farmers want: the ‘gustibus multiplier’ and other behavioral insights on agricultural development“.
It turns out, De gustibus non est disputandum is a Latin phrase meaning “In matters of taste, there can be no disputes”. What this means is that everyone’s personal preferences are, practically speaking, simply subjective opinions that cannot be either right or wrong. The economists George Stigler and Gary Becker (1977) used this phrase as the title of a paper in which they argued that preferences should not be disputed by economists. Rather, the curious task of economics should be focused on explaining economic behavior via only changes prices and income. Individual preferences are assumed to be invariant across individuals or over time (i.e. “set in stone”).
Carter goes on to explain that quite a bit of recent research (which can be filed under the heading of behavioral economics, but is quickly just becoming economics) is beginning to cast some doubt on this assumption of the exogeneity of preferences. Additionally, this research has immediate implications for one of the most studied and most durable topics in agricultural development economics: explaining why some farmers refrain from adopting seemingly beneficial technologies. Finally, Carter explains what he means by a “gustibus multiplier”:
In addition to broadening the domain of economics to include analysis of preference heterogeneity, other work in the broad domain of behavioral economics has begun to investigate the very stability of preferences. Although this work is less well formed than the work on decision making under risk, this new work suggests that economic interventions and other experiences may systematically alter the preferences that shape our hopes and aspirations. Such endogenous preference alteration can multiply the impacts of an intervention if, for example, the intervention makes individuals more hopeful, patient, and willing to co-invest in the supported activity. Because these preference changes can make impacts surprisingly large (or small), they can create a behavioral multiplying effect. There is much foundational work required to more fully understand these “Gustibus Multipliers”, and it remains a wide open area of inquiry.
I highly recommend the entire paper.
The first half of the paper does an excellent job introducing some of the consequences of heterogenous and endogenous preferences on agricultural development policy. In many cases where both heterogenous and endogenous preferences exist standard expected utility theory fails (or performs very poorly) in predicting economic behavior. Carter discusses the implications of this line of reasoning on some of his recent work measuring the adoption and demand for micro-insurance among poor farmers throughout much of the developing world. In this discussion the famous Ellsberg and Allais paradoxes are used to motivate, as well as organize, his and his co-author’s findings.
The second half of the paper summarizes some of the reduced-form empirical evidence that psychological constraints matter (i.e. development economists can’t understand the world simply by observing changes in prices and income – a la Stigler and Becker, 1977) as well as some of the most established conceptual models of these concepts to date. It is here that this already interesting paper became really fun to read, as Carter sites much of the literature that has captivated me for quite some time now. Carter starts with Esther Duflo’s 2012 lectures on “Hope as Capability“, Banerjee et al.’s (2015) study published in Science on the “Ultra-poor Program” in six countries on three continents, and his own work on hopelessness and post-conflict areas of Colombia. Finally, Carter compares and contrasts three theoretical models found in three papers that showcase this new ‘economics of hope’ – Travis Lybbert and Bruce Wydick’s (forthcoming) paper, Garance Genicot and Debraj Ray’s (2015) paper, and Rachid Laajaj’s (2015) paper – all of which were discussed in my MS Thesis.
For me, this was a fun and rewarding paper to read. Over the previous two years, I’ve been working on a project in which we were aiming to measure hope. Any time I presented this work, either in my own department or at professional meetings, I had to spend a considerable amount of time and effort motivating why an economist would want to measure hope. This paper does a fantastic job at doing just that and is written by someone who is much more accomplished and widely respected than myself.