Three New Papers on Psychology and Development Economics

I’ve had the pleasure of attending a couple of excellent conferences focused on poverty traps in the last few months–their causes, consequences, and possible cures.  The first of these, The Economics of Asset Accumulation and Poverty Traps, organized by the Chris Barrett, Michael Carter, Jean-Paul Chavas, and the National Bureau of Economic Research, took place June 26-27 in Washington D.C.  The second of these The Role of Faith in Poverty Reduction Conference, hosted by Dean Karlan of IPA/Yale and David Sutherland of International Care Ministries, was held at Yale University last week on September 20-21.

Several of the papers presented at these conferences focused on the interesting new intersection between psychology and development economics, discussing the role of psychological factors in both creating and escaping poverty traps. I thought it might be interesting to present a summary of the results from a few of these papers, which include one of my own that I presented at both conferences.

behavioraleconbrain”Depression for Economists,” a paper presented by Johannes Haushofer of Princeton (with co-author Jonathan de Quidt) at the NBER conference, I found to be one of the most interesting new psych-theory papers in development economics.  The paper not only uses an economic model to provide a “rational” basis for some of the behaviors that we observe among depressed people, it shows how chronic depression can emerge as a result of a single unfortunate life event that sends the individual into a downward spiral. The intuition of their theoretical model is that since people overestimate the role their own agency plays in outcomes, when an individual encounters a (random, negative) shock, he or she is likely to attribute the poor resulting outcome to low ability.  Believing that one’s ability is now lower than previously thought, the resulting lower perception of self-efficacy causes a person to believe that the rewards from one’s own effort are lower than previously believed.  They demonstrate how this may lead to over-sleeping, over-eating, reduced investment in education, and increased use of cigarettes and alcohol (yes, all variables in the model).  I’ve never seen a paper demonstrate before why depressed people are more likely to want to get drunk…but this paper explains why.

The working paper “Poverty, Aspirations, and the Economics of Hope” I presented (co-authored with Travis Lybbert and Irvin Rojas) presents a theoretical model based on work in positive psychology by Rick Snyder, who looked at the basic components of hope in terms of goals, agency, and pathways.  Within this framework it becomes easy to analyze different types of development interventions in areas like microfinance, education, and health in light of the importance of releasing external constraints, but also internal constraints.  The latter include situations in which we observe people “giving up” because through different experiences they have adopted a worldview that tells them “nothing I do ever works anyway.”   And as a result, interventions like building new infrastructure, providing microcredit, education, and other well-intended programs may have little effect because the interventions don’t address these internal constraints. Anecdotally at least, this seemed to be the case among hundreds of indigenous women taking microfinance loans in Oaxaca, Mexico with the NGO Fuentes Libres, a development arm of the Evangelical Covenant Church. We carried out a “hope intervention” among these women that involved the creation of a documentary film on four of the most successful women taking Fuentes’ microfinance loans, and a biblically-based curriculum designed to bolster aspirations, the recognition of their own abilities, and their ability to conceptualize pathways out of poverty. The (one month) short-term results we present show that the intervention significantly raised aspirations (by about a quarter of a standard deviation) and is likely to have boosted sales and profits in the neighborhood of 17-19% as well—but we’ll see what the effects are after we analyze the follow-up data taken a whole year after we began the project.

At the Yale conference, Julian Jamison presented his paper with Chris Blattman and Margaret Sheridan “Reducing Crime and Violence Experimental Evidence on Non-Cognitive Investments in Liberia.”   As I have never seen an economics paper that has rigorously examined the link between depression and poverty traps, it is also both remarkable and refreshing to see an economics paper that examines the effects of carrying out cognitive behavioral therapy on street criminals.  This fantastically interesting paper reports on the results of a randomized controlled trial that crosscuts two interventions: cognitive behavioral therapy and a $200 cash grant for each of the “criminally-minded” subjects.   What the research finds is that the effect of the $200 cash grant dissipates pretty quickly; subjects fell back into previous patterns of crime.  However, the cognitive behavioral therapy reduced crime somewhere between 20-50% (although data collection here is admittedly difficult).  Moreover when the cash grant was combined with the therapy, the changes were astonishing:  A year later, the subjects who got both therapy and the $200 cash grant were 44% less likely to be carrying a weapon, 43% less likely to sell drugs, and reported lower aggression.   This represents an amazingly creative intervention from a great research team that illustrates the transformative impact that can be realized when simultaneously addressing both the internal and external constraints that exist among the poor.

Here’s to looking forward to both more creative interventions and more research in economics that begins to look at people holistically, as full human beings in which spiritual, psychological, social, and economic factors each play critical roles in human flourishing.

Follow Bruce Wydick and AcrossTwoWorlds on Twitter @BruceWydick.

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