ABSTRACT OF PAPER
Title: Behavioral Economics and "`New Development Economics": What's Wrong With Evidence-Based Approach?
Author: Favereau Judith, Michiru Nagatsu
In recent years development economics has undergone an "empirical turn"(Angrist and Pischke, 2010), namely the extensive use of randomized field experiments (RFE) to produce evidence within the Jameel Abdul Latif Poverty Action Lab (J-PAL). The J-PAL's approach is characterized by their leaders as a "new development economics"(Banerjee, 2005) based on the unique use of RFEs in order to (1) produce evidence on the effectiveness of development programs and then (2) use these evidence to guide policy makers. Although the "new development economics" claims to be "theory-free", its practice is largely informed and guided by the framework of behavioral economics: the J-PAL's researchers focus on the behaviors of the poor, assuming that the poor, like the rich, suffer from various cognitive biases that hinder rational decision making, thereby keeping them trapped in poverty. RFEs are thus designed mainly to assess the power of different "nudging" devices to counteract these cognitive biases. We show how this approach operates in practice by examining a paradigmatic RFE study of this type, Pascaline Dupas' experiments on measures to increase the use of bednets to fight malaria. We then argue that the continuous failure of the series of her experiments to find any effective nudge to change the behavior of the poor is partly but importantly due to the individualistic perspective on decision making, which the study inherits from behavioral economics. That is, the practice of allegedly "theory-free" RFEs in fact suffers empirically from the implicit theoretical perspective that takes as the main explanatory/ causal factor individual decision making in isolation from interactive, social and institutional contexts. The failure of Dupas' experiments and the unfulfilled promise of the "new development economics" more generally suggest that the evidence based development economics movement may gain from shifting the focus from isolated individual decision makers to aggregate choices in social and institutional contexts. A way to achieve this, i.e. to reconsider experimental practice in behavioral economics upon which the new development economics is built. Our proposal is motivated by the new practice called "experimetrics"(Bardsley and Moffatt 2007) or "behavioral econometrics"(Andersen et al. 2010), which adopts econometric techniques to explicitly model heterogeneity of data generating processes in the population. This opens up a way to understand how interactions of people with different beliefs and preferences result in aggregate results, and how the same individuals change behavior from one context to another. These are key knowledge to effective policy interventions, which however RFEs have failed to provide so far. We propose that the proponents of RFEs drop the rhetorical emphasis on its "evidence-based" nature and shift the average-individual based approach perspective on poverty for an heterogenous group based approach. REFERENCES ANDERSEN, Steffen, Glenn W. HARRISON, Morten Igel LAU, Elisabet E. RUSTROM. 2010. "Behavioral Econometrics for Psychologists." Journal of Economic Psychology. 31: 553-576. ANGRIST, Joshua and Jörn-Steffen PISCHKE. 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking Con out of Econometrics." Journal of Economic Perspectives. 24(2): 3-30. BANERJEE, Abhijit. 2005."'New Development Economics' and the Challenge to Theory." Economic and Political Weekly. 40(40): 4340-4344. BARDSLEY, Nicholas and Peter MOFFATT. 2007. "The Experimemetrics of Public Goods: Infering Motivations from Contributions." Theory and Decision. 62: 161-193.
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