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behavioral economics

The Things We Do: Bandwidth Poverty- When our Minds Betray Us

Roxanne Bauer's picture

Struggling to ‘get by’ is stressful.  We worry whether we can make it to our next paycheck, whether a trip to the market will be successful, whether we can pay the rent on-time… the list goes on.

All of this stress leads to an attention shortage, known as bandwidth poverty.  Bandwidth poverty creates a negative, reinforcing cycle.  When we experience financial poverty, we focus on the immediate need to make money or to pay a bill, and we don’t have sufficient cognitive resources or bandwidth to spend on other tasks or later deadlines. This leads to less-than-optimal decisions that leave us worse-off because we’ve lost the capacity or mental space to consider future needs.

In a series of experiments, researchers from Harvard, Princeton and Britain's University of Warwick found that urgent financial worries had an immediate impact on poor people's ability to perform well in tests of cognition and logic.

The researchers conducted two sets of experiments— in two very different settings— one in a mall in suburban New Jersey and one involving sugar cane farmers in rural India.
 

Gamification of Thrones

Sana Rafiq's picture

If you put a target in the toilet, men will miss less. That’s the intuition behind the proliferation of strategically placed fake flies in public urinals. While anyone who has had to clean up after a careless aimer might say, “It’s about time,” anyone who has studied behavioral economics might say, “It’s about games.”

Games are fun. We play them for hours on end, of our own free will, without pay, in return for a feeling of accomplishment or virtual badges or points or just the promise of seeing all the cards bounce across the screen at the end of Windows Solitaire.

Development, on the other hand, is serious. People’s health, happiness, and well-being are at stake. Super Mario Brothers? Game. Candy Crush Saga? Game. Poverty, hunger, disease: Not games.

Long-term effects of a short-term boost to savings – are mental accounts the key to why more small businesses don’t take advantage of high returns?

David McKenzie's picture
Standard economic theory would suggest that a one-time infusion of cash should have at most a temporary effect on business profitability – over time, individuals facing high returns should be able to re-invest business profits and bit-by-bit bootstrap themselves up to the steady-state size. Yet in an experiment I did with Suresh de Mel and Chris Woodruff in Sri Lanka, we find a one-time grant has sustained impacts five years later on male microenterprise owners.

Enhanced Active Choice: Utilizing Behavioral Economics to Increase Program Take-up

David McKenzie's picture
Shifting from opt-in to opt-out defaults is one of the clearest success stories for policy to emerge from behavioral economics, as evidenced by the large increases in organ donor rates and contributions to retirement savings plans obtained when opt-out defaults are used instead of opt-in. 
                However, there are several limits of opt-out policies:
 

When people don’t behave according to economic models

David Evans's picture

What falls outside the standard assumptions and models of economics?  How does that matter for development?  Last week, the Africa Chief Economist’s Office and the Development Economics Research Group of the World Bank sponsored a star-studded course exploring exactly this issue.

Nobel Prize winner George Akerlof highlighted how, because of all the advantages of markets, we ignore the traps that come along with them.  Sellers can deceive buyers and prey on their unconscious biases, lack of self-control, and naiveté. 

Using his famous “lemons” market example, Akerlof showed that, instead of there being no equilibrium, naïve buyers will in equilibrium buy poor-quality used cars. He calls this phenomenon “Phishing for Phools”.

Behavioral design: slap or tax yourself into productivity?

David McKenzie's picture

One of those stories going the rounds about a month ago concerns a blogger in San Francisco, who worried he was wasting too much time on Facebook and Reddit. As he writes on his blog, he used a software app which tracked what he was doing with his time and found almost 19 hours a week went to these activities.


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