Showing posts with label World Bank. Show all posts
Showing posts with label World Bank. Show all posts

Friday, December 23, 2016

World Bank Report on Behavioral Economics

Humans in the real world behave in ways that are strikingly inconsistent with rational models based in economics. Bounded rationality, bounded self-interest and bounded self-control in human is a pure fiction, not a reality. With these assumptions, the profession of economics with its obsession with mathematical modelling has, over time, hopelessly removed from the complexities on the ground. Global Recession of 2008 was a jolt to the the neoclassical free market purists who were unable to predict market failure. The shock led to to the mainstreaming of behavioral economics. Behavioral economics is a subfield of economics that draws on the psychological, social, and cultural foundations of human decision making.

A Mckinsey report: Redefining Capitalism has summarized this quite good -  Over the past several decades, though, some of the bedrock assumptions of neoclassical theory have begun to unravel. Behavioral economists have accumulated a mountain of evidence showing that real humans don’t behave as a rational homo economicus would. Experimental economists have raised awkward questions about the very existence of utility; and that is problematic because it has long been the device economists use to show that markets maximize social welfare. Empirical economists have identified anomalies suggesting that financial markets aren’t always efficient. And the macroeconomic models built on neoclassical ideas performed very poorly during the financial crisis.

I have previously written on World Bank reports too in a grim sense. But this is different and big. Mind, Society, and Behaviour is a World Bank report of 2015 that will lead to major redesign in the field of Development Economics and Development Policy. The resource material is good for a detailed study and can be utilized as an example for a beginner as well as expert. As per Kaushik Basu, Senior Vice President and Chief Economist of the World Bank :"This Report distills new and growing scientific evidence on this broader understanding of human behavior so that it can be used to promote development. Standard economic policies are effective only after the right cognitive propensities and social norms are in place." (Source)

The report considers the importance of irrational and often unpredictable behavior in human decision making. It is based on theoretical and investigative work that comes with uncovering the underlying rhythms and rules of human behavior. The report stresses that focusing more closely on correctly defining and diagnosing problems with human element can lead to better designed interventions. The report applies the three principles to multiple areas, including early childhood development, productivity, household finance, health and health care, and climate change.

I will quote a passage of the report (page 22) for the glimpse: From the hundreds of empirical papers on human decision making that form the basis of this Report, three principles stand out as providing the direction for new approaches to understanding behavior and designing and implementing development policy. First, people make most judgments and most choices automatically, not deliberatively: we call this “thinking automatically.” Second, how people act and think often depends on what others around them do and think: we call this “thinking socially.” Third, individuals in a given society share a common perspective on making sense of the world around them and understanding themselves: we call this “thinking with mental models.”

Solving last mile challenges and Behavioural Change and The Making of Homo Honoratus: From Omission to Commission are examples of how behavioural quirks lead to success in the public policy. Economics without debates, politics or history is a dead mathematical exercise devoid of any intellectual and humane base. The past is already gilded with Locke, Bentham, Mill and Rawls. In the current age of techno-utopianism, the new star in town is Professor Daniel Kanheman. The transformation of Homo economicus to Homo sapiens has began.

Monday, April 20, 2015

Of Reading and Documentation in Development Sector

In every field of endeavor, the one who reaches the pinnacle will be found to have built upon the knowledge and experience of someone who preceded him. People in development sector feel obliged to submit report to donor organization with complete focus on grants.There are suggestions from the expensive government project reports that end up just gathering dust on a shelf in India. Thousands, of reports on policy, poverty and development issues are released each year world wide. A lot of recommendations, solutions and findings are keep on piling in a PDF version. The citation of paper doesn't imply that it has been read. Even the reader looked only at downloads and citations to gauge the use of these report. The key question that comes in mind: Who will ever read them?

Even world bank is pondering over this question (Which World Bank reports are widely read ?) Recent findings suggest my fears:


The researchers contribute to their discipline's knowledge with the deep optimism of shaping decision making ability of the practitioners. However, practitioners very rarely read articles published in peer-reviewed journals. One of the ironies of development sector has been that researchers have envied practitioners and practitioners have undermined the academia. Practitioners label reports as long, boring, incomprehensible jargon and full of technical language.

Knowledge sharing takes place in many different settings—through seminars, presentations, & blogs. The slow pace and complexity of poverty, gender and development meant that the blog is more for enthusiasts and casual readers. In the eyes of detractors, such trend leads to the the art of reading the superficial books and blogs. But we must look for a long term vision and expanding the base of readers. The popular and easy will boost people's reading list, among many of whom are working with limited knowledge even with high literacy levels. These readers can gradually move towards domain oriented journals. Journals are essentials but have limited ability for the academia to engage people with all types of opinion ranging from stupid to innovative. There is an urgent need to promote new ways to increase impact and spread of the knowledge.

Why don't we see more books/films/blogs like this coming out of development? They do exist; we just have to seek them out and make them available for more than handful of readers. Practical knowledge is interdisciplinary, not confined to narrow pockets of domain. There is an open-access movement in access of journals that will allow practitioners from reading and understanding them. Through books, op-ed and blogs, there can be reach to a wider set of practitioners, journalists, citizens, students, entrepreneurs, civil society experts and other development actors. Even the most talented thinkers have to reach masses for shaping future's public debates or influencing policies. A good idea need to see the light of day. Only the eloquence and wisdom of the author's passion in writing can lead to the compelling reach of such idea for mass audience.

Still and all, most books published in the private market have few readers, most music fails to reach an audience, and most movies fail. Any popular medium of spreading knowledge like blog is no exception of this rule. However, marvelous an idea may be – cannot, on their own change very much the widespread believes. Working in isolation strongly holds back progressive causes and the effectiveness of enlightened minds and seasoned practitioners.

I have written a blog on list of books and list of movies aimed to spread basic ideas to all rather than tiny size of the intended audience. One can look for Understanding Economic Development Reading List by Chief Economic Adviser to the Government of India, Arvind Subramanian. Suggested Blogs for those who are still interested :

Organizations : World Bank, Asian Development Bank, Oxfam, CGAP , IFMR.
Academician : Illa Patnaik, Swaminomics, Ajay Shah. Tyler Cowen.
Practitioners :  Arvind Kumar, PMRDF.
Magazines : Down to Earth, India Together .