G. Sampath has written a trenchant critique of behavioral economics in The Hindu that’s worth a read if you do work related to this field. I’m not fully in agreement with it, but he raises some important points.
Behavioural economics uses insights from psychology, anthropology, sociology and the cognitive sciences to come up with more realistic models of how people think and make decisions. Where these decisions tend to be flawed from an economic point of view, governments can intervene with policies aimed at ‘nudging’ the targeted citizens towards the right decision.
All this seems fairly unobjectionable. However, things change when behavioural economists focus their attention exclusively on the behaviour of the poor. Till date, there is no evidence that monitoring and ‘nudging’ the behaviour of the world’s poor is a better route to alleviate poverty than, say, monitoring and ‘nudging’ the behaviour of the financial elite. Surely the latter cannot be deemed as altogether rational economic agents — not after the 2008 crisis?
The report states in all earnestness that poverty “shapes mindsets”. From here, it is a hop, skip, and jump to holding, as the leading behavioural economists of the day do, that the poor are poor because their poverty prevents them from thinking and acting in ways that can take them out of poverty.
Thus the focus as well as the burden/responsibility of poverty-alleviation would shift from the state — from macroeconomic policy, from having to provide employment, health and education — to changing the behaviour of the poor. The structural causes of poverty — rising inequality and unemployment — as well as the behaviour of the owners of capital are evicted from the poverty debate, and no longer need be the focus of public policy.
The point about paternalism here is well-taken. I don’t think the nudges he references here are harmful or problematic, since they tend to be things like offering people lentils or cash transfers in exchange for vaccinating their children, but it’s also true that these are programs designed by privileged academics and carried out on the bodies of poor people. This is always, inherently, something to think carefully and critically about.
That said, there are several points on which I would disagree. The first is that this academic focus on micro-behaviors has somehow silenced conversations on macro-level policies about unemployment and inequality. There are huge English-language academic literatures on both of these topics in low income countries. From the policy side, one could also point to the rapid spread of cash transfer programs which are meant to reduce inequality. These have grown largely on the strength of the microeconomic evidence that people tend to use the money well. (For two good overviews of this topic, check out the World Bank’s State of Social Safety Nets 2015, and James Ferguson’s Give a Man a Fish: Reflections on the New Politics of Distribution.)
The second issue is Sampath’s reading of the causal links between behaviors related to poverty (like high discount rates) and the incidence of poverty itself. As indicated by the example of the Indian sugarcane farmers, there’s plenty of evidence that living in extreme poverty is very stressful, and tends to change the way that people think and act. This is quite different to saying that people stay poor because they think and act a certain way. Severe poverty of the type found in low income countries persists because of market failures, bad institutions, and (in some places) the absence of the type of stable elite bargains which constrain outright war. Even if you were a benevolent dictator and could nudge people into making lots of small behavioral changes, like saving more and vaccinating their children, this wouldn’t touch most of the structural causes of poverty. I don’t think any behavioral economist would disagree with this statement.
So why, then, do people keep studying the behavioral correlates of poverty? For many researchers, I think the goal of their studies is not actually to reduce poverty rates, but rather to find low-cost interventions that can make life slightly easier for people who are still poor. The goal is to nudge people into having less debt, or vaccinating their children against the most common diseases, or buying weather insurance for their crops. None of these things, individually or together, is going to pull a family living on less than US$1.25 per day above that poverty line. But they are still steps towards a slightly better life – and from a policy perspective, they’re often more feasible than making sustained, multi-million dollar investments in electrical and transport infrastructure, or bringing a civil war to a durable close. These latter two topics are also active areas of research, but we still know very little about how to solve these complex types of coordination problems.
Returning to the second point, though, I’d also differ with the way that Sampath read the study about the sugarcane farmers in particular. I should say first that I completely understand why he was so offended by it. IQ research is always politically charged, and concluding that “poor people are stupid” is a recipe for terrible policies that strip people of their agency (which is very different to nudging them to save a bit more). The only reason I differ here is because I saw Sendhil Mullainathan present this work at PacDev last year, and his interpretation ran in the opposite direction entirely. The main finding of the study was that the cognitive stress of extreme poverty is considerable, equivalent to experiencing a 10-point drop in IQ, or pulling all-nighters for days on end. But Sendhil’s point was not that poor people shouldn’t be allowed to make major decisions or anything similar. Instead, it was a call to empathy. He pointed out that most people are trying as best they can to provide good lives for their families, and asked his audience of privileged Northern academics to think seriously through the challenges of doing that if you started each day feeling like you hadn’t slept at all. The interpretation, then, was not that “poor people are stupid” but “poor people are highly stressed,” which seems to me like it would lead to a different set of policy prescriptions aimed at giving reducing that stress by giving people higher and more stable incomes.