Development and Behavioral Economics

Last week the World Bank dropped their big annual report on development, the World Development Report. (In a rather cruel way, I might add, just as all us interested graduate students were gearing up for exams.) This year’s was much anticipated by me (and I think by others as well) as it dealt with applying behavioral economics to development theory and practice. Already many have written glowing reviews. Ben Ramalingam called it “one of the very best big development reports in recent years“. David Brooks called the outputs of behavioral economics “small miracles“. Timothy Taylor writes a superb blog post adding, “We are too often governed by people who have gotten used to paying others to fill out the paperwork of life”. Both Chris Blattman and Tyler Cowen center their blog posts around the question: Do development workers underestimate the poor?

Now that my exams are finished, and (I think) I have extra time on my hands, I’ll be writing a three part summary/review of my own about the report. Of course, I encourage you to read it in entirety. Or at least this nice (and short) 40 page overview.

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This Report aims to integrate the recent finding on the psychological and social underpinnings of behavior to make them available for more systematic use by both researchers and practitioners in development communities. The Report draws on findings from many disciplines including neuroscience, cognitive science psychology, behavioral economics, sociology, political science, and anthropology…

For more on behavioral economics and development see previous posts by me here here here here and here. Needless to say, I think the approach of behavioral economics provides us with the most effective set of tools and strategies yet developed for promoting development and combating poverty around the world. To be honest with ourselves, the development community is way behind the times when it comes to utilizing this approach.

These approaches are already widespread among firms in the private sector, which are often preoccupied with understanding customer behavior in its natural contexts. When a company introduces a product whether a new brand of breakfast cereal, toothpaste, or cell phone, it is entering a competitive market, where small differences in usability and user satisfaction mean the difference between product take-up and rejection. In the intensive and interactive design phase, the company conducts significant qualitative and quantitative research on its customers to understand seemingly peripheral but nonetheless critical drivers of behavior. When and where do customers typically eat breakfast? Are they at home, work, school, on a bus, in a train, or in a car? What is the social meaning of the meal? Does it involve valued ritual? Is it a communal or more private event? Does behavior change need to be coordinated across many people or can it occur individually? These examples may seem trivial in comparison to the challenges that governments and international organizations face in developing countries. Yet they hold an important lesson: when failure affects the profit-making bottom line, product designers begin to pay close attention to how humans actually think and decide. Engineers, private firms, and marketers of all stripes have long paid attention to the inherent limits of human cognitive capacity, the role that social preference and the context play in our decision making, and the use of mental shortcuts and mental models for filtering and interpreting information. The development community needs to do the same.

For some who read this blog, this approach will be nothing new. What is new (and what really is the key contribution of this report) is that most of the lessons learned to date are now in one place. Next time on the blog – An Expanded Understanding of Human Behavior for Economic Development

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).

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Links I Like [1.14]

I am adding a new element to this blog starting in 2014. On a monthly basis I will be posting a short list of “Links I Like”. These are external links to articles, websites, or anything else that I come across that I deem worth sharing. (I concede this is what Twitter is designed for, but—sadly—we have not yet reached the day when every sensible person I know utilizes a Twitter account.)

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