OMG - The World Bank Has Figured Out Behavioral Economics

If you have been following along here, you have seen this about development and “culture”,
  See this post Culture is Key to Development. 

And about behavioral economics and our “irrational” behavior.
  See this post on Thinking, Fast andSlow.

The World Bank has wrapped these together with great results. Check out this report summary:

  http://www.worldbank.org/en/news/feature/2014/12/02/world-development-report-2015-explores-mind-society-and-behavior

David Brooks commented on this in his column, as “smallmiracles”.
  http://mobile.nytimes.com/2014/12/12/opinion/david-brooks-in-praise-of-small-miracles.html

I think this is a BIG DEAL! The UN Millennium DevelopmentGoals were intended to eliminate world poverty. They were based on research by Jeffrey Sachs and others, and the premise that people just need a bit of help getting over the “hump” as it were, in order to develop their own economic well being. But it did not work out so well. People really do not make “rational” economic decisions. In important things like economics, food, and our general well being, we make emotional decisions. And we make them quickly and with firm commitment. Appealing to our rational self actually makes us even more entrenched in those decisions. The UN has undertaken a new effort now to create Sustainable Development Goals. The UN has developed a very challenging set of goals, and some wonderful graphics for them. 

This World Bank study is very much in support of this new approach. It adopts the behavioral economists’ approach of “nudging” or “going with” and “using” our built in psychological propensities, instead of arguing against them. This could work!

Just for one example, cited by Brooks:

Too many people die in auto accidents. When governments try to reduce highway deaths, they generally increase safety regulations. But, also in Kenya, stickers were placed inside buses and vans urging passengers to scream at automobile drivers they saw driving dangerously.

The heckling discouraged dangerous driving by an awesome amount. Insurance claims involving injury or death fell to half of their previous levels.

AND – gold stars work better than economic incentives:

In Zambia, hairdressers were asked to sell female condoms to their clients. Some were offered financial incentives to do so, but these produced no results. In other salons, top condom sellers had a gold star placed next to their names on a poster that all could see. More than twice as many condoms were sold. This simple change was based on an understanding of the human desire for status and admiration.

The summary introduction to the report actually says it more positively and clearly:

To inspire a fresh look at how development work is done, the Report outlines three principles of human decision making: thinking automatically, thinking socially, and thinking with mental models. Much of human thinking is automatic and depends on whatever comes to mind most effortlessly. People are deeply social and are influenced by social networks and norms. Finally, most people do not invent new concepts; rather they use mental models drawn from their societies and shared histories to interpret their experiences.  (Page 2)

Outstanding. Automatic thinking – the FAST brain. Social influence – culture and psychological defense. Mental Models – world view, tradition, conservatism, risk avoidance. I love it. Finally, we might get somewhere with all of this.

Here’s one example of a study on the affect of poverty in children. It’s not just the nutrition!

Poverty in childhood, which is often accompanied by high stress and neglect from parents, can impair cognitive development, according to the report, so public programs that provide early childhood stimulation are critical. A 20 year study in Jamaica found that a program aimed at altering the way mothers interacted with their infants led to an increase in earnings by 25 percent once those children became adults, as compared to others who did not participate in the program.

The full report is also available at the web page cited above. If you care about world poverty, about development, about economics – give it a look! At 200 pages, it is going to take me a while to digest this. I'll share more insights as we go along here. Do you have some? 

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NOW – if we could just figure out how to persuade people to make better political decisions. How might that be done?