“Sendhil Mullainathan is a professor of economics at Harvard University”, so they tell me at Seed magazine, where he writes:
All too often, the choices of the poor are viewed as a result of either some intrinsic failing (“they’re just very myopic people”) or some deep psychological feature of poverty (“they’re desperate”). Behavioral economics — the integration of psychological insights into economic analysis — offers a third interpretation: All of us face difficulties in making the right choices; the poor are just asked to do it more often and in tougher circumstances.
Now I like behavioural economics, and I looooooooooooove poor people, so you’d think I’d be really excited about this article. Unfortunately it’s a bit of a damp squib: he doesn’t really give any insight into the behaviour of poor people, either in terms of blank description or in terms of behavioural economics. One example: farmers’ aversion to farming sugarcane:
Sugarcane is harvested once a year and paid for in one lump sum. Planting sugarcane, although it’s more profitable monetarily, raises an unappealing psychological challenge. Imagine receiving your entire annual salary all at once, at the beginning of the year, and having to dole it out carefully over the course of 12 months. Meanwhile, many who own cows cite the daily income that milk provides as a primary benefit, even though cows are not as profitable as other investments. This is the far more consequential equivalent of someone purchasing the more expensive (per unit) but smaller bag of cookies to avoid the temptation of eating all of them at once.
Actually, no it isn’t. I would guess (from my non-farmer perspective) that the psychological challenge of sugarcane is more to do with the fact that if a crop that you only harvest once a year fails, then your family’s going to starve for an entire year. Cows not only provide a more stable income over the period, but they’re also more flexible – in pastoral contexts, owning cows is the equivalent of having money in the bank. So cows over sugarcane is not only a rational economic choice, it’s far from being as short-sighted as Mullainathan claims.
Like all science journalism, I assume that this article doesn’t fairly represent his research findings or full analysis, so I’ll be heading to his research page to see what’s behind his assumptions. Behavioural economics could have a tremendously positive impact on the development sector, so I’m hopeful – as long as we remember that behavioural economics doesn’t just focus on behaviour, but on the motivations underlying that behaviour.
Related posts: