Saugato Datta and Sendhil Mullainathan, “Behavioral Design: A New Approach to Development Policy.” Review of Income and Wealth 60(1): 7–35, March 2014.
• Behavioral economics can help us design development policies that will work. There are no guarantees, of course – much of what we have learned comes from small-scale field experiments, and their external validity and ability to scale are not yet proven.
• The poor are like the rest of us, though their poverty adds to their psychological burdens.
• A farmer’s failure to use fertilizer might not arise from an underlying preference not to use it; indeed, it can happen even where there is a desire to use fertilizer. People procrastinate, and they do so repeatedly; people also lack self-control to resist temptations, including temptations to use resources for things other than fertilizer. As a result, the timely provision of fertilizer at a small subsidy can have significant impacts on usage; likewise, a commitment savings plan can spur fertilizer use.
• Four types of mental resources are scarce: (1) self-control; (2) attention; (3) cognitive capacity; and (4) understanding. More information or even financial subsidies may not resolve the problems created by these scarce resources.
• Datta and Mullainathan argue that development problems might be fairly situation-specific, and that the binding constraint or constraints might implicate behavioral issues. (Compare with Dani Rodrik's work (with co-authors) on "growth diagnostics".) Datta and Mullainathan suggest a behavioral mapping of problems that reveals where these constraints (bottlenecks) might bind. Commitment savings accounts, steady income flows, appropriate defaults, reward lotteries, and reminders: these are some strategies that can help to overcome behavioral bottlenecks.
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