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What Economists Can Learn From Humans

Chandrahas Choudhury, a novelist, is based in New Delhi. His novel "Arzee the Dwarf" is published by New York Review Books. Follow him on Twitter at @Hashestweets.
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Every year now for more than three decades, the World Bank has published the World Development Report, a survey and synthesis of current thinking on a major theme or debate in development economics.

These reports, which are produced by the bank’s Research wing, are collaborative ventures integrating the work of many hands; they are rarely very striking in their style or bold in their judgments. Although their aim is to set the agenda for development economics, they generally are not very efficacious in establishing new concepts or paradigms (one exception was the “dollar a day” baseline for poverty proposed by the Australian economist Martin Ravallion in the 1990 report).

Further, the report doesn't get much media coverage in Washington, from where it emerges but to whose own concerns it is peripheral. Often it’s the news media in developing countries that pays more attention to them. Legend has it that it is hard even to get bank staff to read them.

The bank’s report for 2015, however, should prove to be an exception. Titled “Mind, Society, and Behavior,” it’s an ambitious, intellectually sophisticated work that tries to show, using hundreds of real-life examples from countries as far-flung as India, Israel, Colombia and Kenya, what development economics could learn from the behavioral sciences, especially in traversing that pitfall-rich realm between policy design and implementation.

Although it sometimes belabors the obvious -- no one will be surprised to learn that man is a social animal, or that our view of reality owes as much to prejudices and stereotypes as to facts and truth -- the report is so rich in stimulating details and case studies that one might dip into it as one dips into Tim Harford’s "The Undercover Economist" and learn something new or surprising about human nature on every page. Further, one of the report’s most welcome aspects is its self-reflexivity: It devotes an entire chapter to the biases of those people who believe they have no biases -- development professionals themselves. That’s quite something for a product from an organization seen to be as status-quoist and conservative as the World Bank.

Consider, for instance, one of the most striking pages of the report, on the policy challenges posed to social reform in India by the deep structure of caste. It should be required reading for every Indian for what it reveals about the psychology of caste and its degrading effect on human beings, as well as how stereotypes become tragically self-fulfilling and look ever more like “reality”:

In India, low-caste boys were essentially just as good at solving puzzles as high-caste boys when caste identity was not revealed. … However, in mixed-caste groups, revealing the boys’ castes before puzzle-solving sessions created a significant “caste gap” in achievement in which low-caste boys underperformed the high-caste boys by 23 percent, controlling for other individual variables. … Making caste salient to the test takers invoked identities, which in turn affected performance. The performance of the stigmatized low-caste boys declined relative to the performance of the high-caste boys. When caste was revealed to the high-caste boys when they were not mixed with low-caste boys, the high-caste boys underperformed, perhaps because the revelation evoked a sense of entitlement and “Why try?” The simple presence of a stereotype can contribute to measured ability differences, which in turn can reinforce the stereotype and serve as a basis for distinction and exclusion, in a vicious cycle.

Or consider the implications for public policy of the analysis on page 47, where a range of empirical evidence is summoned to suggest that the selfish, utility-maximizing individual of neoclassical economics, who tries in the matter of public goods to be a free rider -- an insight that in economics is often used as an argument against various kinds of collective action -- turns out in many instances to be a conditional cooperator, willing “to cooperate to the degree that others are cooperating.”

There is also a fascinating study on how the dominance of a single caste in land ownership in rural India makes local elections more one-sided and governance poorer. Yet precisely because expectations are so low, the system does not generate the unrest that one expects it should, and is in fact surprisingly stable:

In Maharashtra, all villages have democratic rules, but the villages differ, by historical accident, in how much land the traditional landlord caste owns. In villages in which the traditional caste is dominant (dominant caste members own at least half the land), a system of clientelism appears to prevail that does not occur in other villages. Workers “sell” their votes to landlords in the dominant caste in exchange for insurance and access to the trading network. The vote selling eliminates political competition. Just as in the villages in Sierra Leone that have limited competition, in Maharashtran villages with a dominant landlord group, governance is worse: in particular, there is a 75-100 percent decline in the availability of pro-poor national programs. However, surveys indicate that the low-caste individuals tend to view the situation as satisfactory. Low-caste individuals are 14 percent more likely to say that they trust the large landholders in villages in which the government is dominated by the landlord class than in villages in which the landlord class is not dominant. It seems plausible that in the traditional oligarchic villages, individuals expect little, get what they expect, and so count themselves not unfairly treated.

On a practical level, the new report is an instructive survey of the various kinds of behavioral “nudges” that policy makers could build into their projects to help get past deeply ingrained habits or cultural settings. The utility of this for public policy is self-evident. 

But on an intellectual level, the report proposes much more humility and curiosity about the human being as an economic actor than development economics has exhibited in the past -- and this is good for economics as a whole. Adam Smith was a brilliant man, but surely we have come to rely too much on the precedent of his own perspicacious inductions, from the real-world examples of 18th-century Scotland, for our own categories. Here is an invitation from the World Bank -- a strange and often compromised organization that is, as Steve Denning writes, “an odd combination of a bank, a university and a foundation” -- to both contemplate and imagine our wide and wonderful world anew.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Chandrahas Choudhury at chandrahas.choudhury@gmail.com

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net