This is the tenth in our job market paper series this year.
In developing countries, the high costs of credit along with varied impediments to saving, make it challenging for people to raise large sums of liquidity needed for large and indivisible, or “lumpy,” expenditures. An emerging body of evidence has shown how these constraints push people towards second-best strategies to address their financial needs (Collin et al. 2009 and Banerjee and Duflo 2007). My job market paper, “Gambling, Saving, and Lumpy Expenditures: Sports Betting in Uganda”, looks at the behaviors of 1,715 bettors in Kampala, Uganda and provides evidence that unmet liquidity needs push people towards sports betting as an unexpected alternative method of liquidity generation.
Learning to give preference to long-term goals over more immediate ones is known as deferred gratification or patience and considered a virtue in many cultures. However, there is logic behind asking for rewards immediately, and those who live in poverty know this all too well.
The comedian Jerry Seinfeld, once joked “I never get enough sleep. I stay up late at night because I’m ‘night guy’. ‘Night guy’ wants to stay up late. ‘What about getting up after five hours of sleep?’ ‘Oh, that’s morning guy’s problem. That’s not my problem—I’m night guy! I stay up as late as I want.’
Such decisions are described by the theory of intertemporal choice, the idea that decisions have consequences that come at different points in time. People weigh the relative trade-offs of getting what they want in the immediate future with the trouble associated with waiting but potentially getting something better.
We all face these kinds of decisions in our day-to-day lives, from deciding to work now or later or save or spend money, to whether or not we should stay up late to enjoy the night or go to bed early to feel better the next day. In each of these cases, a decision maker needs to assess the utility (or value) of one outcome that is will occur sooner with another one that is more distant in the future.
Few people doubt the merits of pausing to "think things through" before making a decision. Without doing so, we fear we may end up making a decision that leads to harm and misfortune. However, this process is itself a double-edged sword that can lead us astray.
We've all been forced to make tough decisions in life. From career progression and where to live to which route to take on a trip, we navigate life's choices by considering our options and weighing them against each other. In the context of these decisions, we attempt to predict the negative consequences from an action or decision and the likelihood that those consequences will actually occur.
Regret- we seek to avoid it when we can
In a famous study on Regret Theory, Loomes and Sugden present the idea that in making decisions, individuals not only consider the knowledge they have and the resources at their disposal, but also the likely scenarios that will result from their choices. They further suggest that the pleasure associated with the results of their choices depends not only on the nature of those results but also on the nature of alternative results. Individuals consider the regret their future selves may feel if they know they would have been better if they had chosen differently. Likewise, they consider the joy their future selves may feel if the consequences of their decisions turn out to be optimal. Thus, both a cause and a consequence of our desire to avoid losses (loss aversion) is our desire to avoid the pain of regret.
According to researchers, individuals exhibit “regret aversion” when they fear their decision will turn out to be wrong in hindsight. Sometimes, we engage in regret aversion before making a decision, leading us to hem and haw and lose out on opportunities. Other times, we engage in regret aversion after a decision is already made, leading us to hold on to losing assets or undesirable positions because we don’t want to admit our choice was not the best one. Many of the interventions that behavioral economists suggest, such as automatic enrollment, default options, and providing information to consumers, are set up to reduce the ex post regret individuals will face for not doing something that’s in their interest.
Heather Lanthorn describes the design of the Affordable Medicines Facility- malaria, a financing mechanism for expanding access to antimalarial medication, as well as some of the questions countries faced as they decided to participate in its pilot, particularly those related to risk and reputation.
I examine, in my never-ending thesis, the political-economy of adopting and implementing a large global health program, the Affordable Medicines Facility – malaria or the “AMFm”. This program was designed at the global level, meaning largely in Washington, DC and Geneva, with tweaking workshops in assorted African capitals. Global actors invited select sub-Saharan African countries to apply to pilot the AMFm for two years before any decision would be made to continue, modify, scale-up, or terminate the program. One key point I make is that implementing stakeholders see pilot experiments with uncertain follow-up plans as risky: they take time and effort to set-up and they often have unclear lines of accountability, presenting risk to personal, organizational, and even national reputations. This can lead to stakeholder resistance to being involved in experimental pilots.
It should be noted from the outset that it was not fully clear what role the evidence from the pilot would play in the board’s decision or how the evidence would be interpreted. As I highlight below, this lack of clarity helped to foster feelings of risk as well as a resistance among some of the national-level stakeholders about participating in the pilot. Several critics have noted that the scale and scope and requisite new systems and relationships involved in the AMFm disqualify it from being considered a ‘pilot,’ though I use that term for continuity with most other AMFm-related writing.
In my research, my focus is on the national and sub-national processes of deciding to participate in the initial pilot (‘phase I’) stage, focusing specifically on Ghana. Besides being notable for the project scale and resources mobilized, one thing that stood out about this project is that there was a reasonable amount of resistance to piloting this program among stakeholders in several of the invited countries. I have been lucky and grateful that a set of key informants in Ghana, as well as my committee and other reviewers, have been willing to converse openly with me over several years as I have tried to untangle the reasons behind the support and resistance and to try to get the story ‘right’.
"People who don't take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year."
- Peter Drucker, university professor, writer and business guru. He has written numerous books on management and business and is considered to be the "father of modern management".
When the World Bank investigates and sanctions a major corporation for corruption related to one of its project, the deterrent impact is readily apparent. However, not every case the World Bank investigates is a major corruption case. In the past year, the World Bank Integrity Vice Presidency (INT) received many complaints related to fraud, and it is important to demonstrate responsiveness to complainants who report credible allegations as well as fix the weaknesses identified. Sanctioning cases of fraud also sends a strong message about abiding by high integrity standards in World Bank-financed projects.
Left unchecked, fraud erodes development effectiveness. It often coincides with poor project implementation, which can result in collapsing infrastructure or the distribution of counterfeit drugs. It causes costly delays and can lead to direct financial losses for countries which cannot afford it. Fraud also fosters a negative enabling environment, creating opportunities for more serious and systemic misconduct to occur.
This is the fourteenth in our series of posts by students on the job market this year.
People are afraid of HIV. Moreover, people around the world are convinced that the virus is easier to get than it actually is. The median person thinks that if you have unprotected sex with an HIV-positive person a single time, you will get HIV for sure. The truth is that it’s not nearly that easy to get HIV – the medical literature estimates that the transmission rate is actually about 0.1% per sex act, or 10% per year.