Applying behavioral economics to development professionals

by on December 11, 2014 at 10:49 am in Economics, Philosophy | Permalink

Timothy Taylor has a superb blog post on that topic, here is one choice passage out of many:

A final example looks at mental models that development experts have of the poor. What do development experts think that the poor believe, and how does it compare to what the poor actually believe? For example, development experts were asked if they thought individuals in low-income countries would agree with the statement: “What happens to me in the future mostly depends on me.”  The development experts thought that maybe 20% of the poorest third would agree with this statement, but about 80% actually did. In fact, the share of those agreeing with the statement in the bottom third of the income distribution was much the same as for the upper two-thirds–and higher than the answer the development experts gave for themselves!

Do read the whole thing, which offers many points of interest.  By the way, here is a good blog post on a first visit to Haiti.

1 derek December 11, 2014 at 11:04 am

Maybe the key is understanding how much an effect the 20% who don’t have on the 80% who do.

2 Ray Lopez December 11, 2014 at 1:04 pm

@derek – I think that’s the key. Seems poverty assistance is helping the dumbest of the poor. This TT statement: “it can sometimes seems in the behavioral economics literature that people are trapped by their own inconsistancies and unable to accomplish their own desires–unless they are nudged along by assistance from beneficent and well-intended aid of an all-seeing policymaker” seems false for some poor, else how can you explain how the poor pay NEGATIVE interest rates for “forced savings” where these poor give money every week to somebody, who, for a fee, gives back their money a few months later? Supposedly this ‘forced savings’ is to prevent an abusive husband from gambling or drinking the savings away, but it’s also because there’s some pretty dumb poor people around (Google “Average IQ by country” and notice what the average IQ is for Africa, and keep in mind functional retardation starts at IQ 80 and below). And btw this holds true in the USA too, but the dumb there are arguably less deserving of aid since they can meet their material needs more easily. I think, based on TC’s Great Stagnation thesis, that socialism will have to stick around a bit longer and we just have to feed these people more and more, like it or not.

PS–Haiti looks like a wreck, worse than (or as bad as) the PH. Usually a photo looks better than the actual thing, so these photos, which look horrible, must mean the actual buildings are in a state of literal ruin. I visited Cuba and Havana was not this ugly looking, not even Malecon.

3 john December 11, 2014 at 8:33 pm

One note, “IQ for Africa” is reversed engineered from development data. No one is giving universal tests in poor countries. So of course “income” and “IQ” tally. It’s by method.

4 Ray Lopez December 11, 2014 at 10:14 pm

@john–thanks, I did not know that. Perhaps there are more black Einsteins in the bush than we assume? The Economist magazine implied poor diet was the reason for Africa’s low IQ.

5 Nathan W December 12, 2014 at 7:31 pm

Poor nutrition in early childhood negatively affects cognitive development. That’s why it’s so critical to ensure that children receive proper nutrition under the age of 5.

Please note that parents of healthy and educated children tend to choose to have fewer children.

6 Nathan W December 12, 2014 at 7:29 pm

Please tell me how, without even grade 1 education, you would transform a few hectares of millet into a successful company with the benefit of $800 annual market revenue for your family of four.

Don’t forget that your birth was never recorded, so you can’t get a bank account or a loan.

7 Ted Craig December 11, 2014 at 11:13 am

Behavioral economics or anthropology?

8 ummm December 11, 2014 at 11:14 am

maybe that’s why schools try to inflate students’ self esteem because so many kids will amount to anything, may as well give em’ hope

9 Nathan W December 12, 2014 at 7:32 pm

Yeah, you wouldn’t want the masses believing that they are actually worth something, would you?

10 TMC December 11, 2014 at 12:02 pm

When data and theory collide, you know which one will survive.

11 rayward December 11, 2014 at 12:40 pm

“What happens to me in the future mostly depends on me.” That’s right, if I don’t make my sacrifice to the Gods, I will be punished. This statement is so meaningless I suspect it was prepared by the same person who conducts political polling in the U.S.

12 Cliff December 11, 2014 at 12:58 pm

Nate Silver

13 Jeff December 11, 2014 at 12:47 pm

I have always been surprised that you do not include Taylor’s blog on your sidebar. I have learned a lot from reading him and it is sometimes pretty difficult stuff. Jeff R

14 Rich Berger December 11, 2014 at 12:52 pm

Do you mean that these poor people can actually help themselves without the aid of developmental economists?

15 Nathan W December 12, 2014 at 7:34 pm

Is that what happened in Europe or America? Everyone did it all on their own without any help from anyone?

I heard a story about this guy, Frank Magna. Impressive story. Rags to riches and all.

But realistically, Western nations grew powerful by empowering the population with extensive and frequent intervention to promote the human capacity of the economy.

16 Bill December 11, 2014 at 1:47 pm

The study of the world bank workers follows similar studies of physicians.

A comparable collection of studies of physician decision making processes , accounted by behavioral economic models, can be found in: Hough, Irrationality in Health Care (Stanford University Press) chapters 6 and 7. Depending how you frame options, doctors recommended different standards of care for their patients, acted on default modes when there were more choices, and assumed preferences for patients that were at odds for what the patient wanted.

17 dearieme December 11, 2014 at 6:20 pm

In what sense can a “development expert” be said to exist? Would they be better describes as “poverty pimps”?

18 Dismalist December 11, 2014 at 6:26 pm

Took the words right out of my mouth! And this generalizes, as per Bill, just above.

19 Tarrou December 11, 2014 at 8:49 pm

The only thing most “experts” are expert in is writing grant proposals. This just in, people who are “experts” in poverty, but never met a poor person, aren’t experts. And “development professionals” professionally funnel money from rich donors and taxpayers to their own expense accounts and those of their local fixers, oligarchs and dictators. Nothing more.

20 Nathan W December 12, 2014 at 7:38 pm

Ever met a corporate manager who did otherwise?

You have to justify a plan to get resources. And if someone says “a million bucks for whoever’s got the best plan to make a plan”, then do you fault the people who do the asking or the people who do the answering?

Given the critical role of accounting and management in the private sector, I hardly think we’d be better off if we left it to the likes of you, for example.

21 zby December 12, 2014 at 5:45 am

Quote from the report via the original blog post:

“Fruit vendors in Chennai, India, provide a particularly vivid example. Each day, the vendors buy fruit on credit to sell during the day. They borrow about 1,000 rupees (the equivalent of $45 in purchasing parity) each morning at the rate of almost 5 percent per day and pay back the funds with interest at the end of the day. By forgoing two cups of tea each day, they could save enough after 90 days to avoid having to borrow and would thus increase their incomes by 40 rupees a day, equivalent to about half a day’s wages.”

To save the 1000 in 90 days they would have to save 1000 / 90 that is around 110 daily, but this is more than their day’s wages as stated above (80). How could that be two cups of tea?

22 M. December 12, 2014 at 9:59 am

You do not take into account the fact that each day they need to pay less and less interests. Your example is true if each day they save 110 but still borrow 1000.

23 Nathan W December 12, 2014 at 7:40 pm

In “Bank to the Poor” Mohammed Yunus describes a similar situation where a mere $27 was sufficient to break the credit-poverty trap for dozens of families.

That began the explosive interest in microcredit. $27. Dozens of entire families freed from crushing credit poverty traps.

24 zby December 12, 2014 at 5:49 am

Hmm – where is the delete button?

Anyway 11 – the correct number for the required level of saving is still 1/8 of the whole daily wages. Do they really spend that much on tea?

25 Kyle December 12, 2014 at 7:26 am

I think they must be using the price of tea at Starbucks or some nonsense, not the actual amount they spend on tea.

26 Nathan W December 12, 2014 at 7:42 pm

Prescribing fixed proportions is only excusable when you can explain the ways in which you know to little to offer any better.

27 JIGUANG YUAN December 14, 2014 at 4:10 am

In my opinion, the result that generated by the experts can only be refered as a additional information.

Those experts got the results from their experiments. However, in different areas of the world, based on the different raising culture and economy, the thinking logic of poor people might be totally different. Also it need to be useful grouping countries based on factors including their GDP per capital, political and enconmic stability, free trade increase with world, open market to world, to created new jobs in both manufacturing and service industries.

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