Most of us understand that investments in early childhood education matter. Quality education early in life not only leads to higher educational attainment, and typically increased learning, but also enables other positive outcomes—such as increased wages. Despite this broad understanding, important caveats exist.
Last week in the Weekly Links, David McKenzie shared a new paper recently published in Science. The paper, by Laajaj et al., examines the validity of quantitative measurements of the “Big 5” personality traits (e.g., openness, conscientiousness, extraversion, agreeableness, and emotional stability) in developing countries. Here is the punchline:
Aspirations, or future-oriented goals, influence how we make choices in the present. In recent years, development economists have developed a particular interest in the way aspirations influence human behavior. The figure below plots my calculation of the number of published articles that mention “aspirations” cataloged in the EconLit database from 1956 through 2016.
This past weekend, I had the pleasure of attending the North East Universities Development Consortium (NEUDC) conference. I presented my paper on the impact of the Dodd-Frank Act in the Democratic Republic of Congo (DRC) and surrounding countries (working paper available here and presentation slides here). It was an excellent conference and a wonderful experience (not least of which because Cornell University kind-of feels like Hogwarts).
One concern that comes with considering depression or aspirational thinking as poverty trap mechanisms is the possibility this opens up for one to blame the poor for the situations in which they find themselves; i.e. it is tempting to shift from considering the poor as trapped by outside constraints (such as market failures) to considering the poor as trapped by their own negative thinking. However, as pointed out by several scholars during the workshop, it is much more productive to think about the sort of physiological interventions suggested by these mechanisms as compliments to, rather than substitutes for, traditional interventions. If project implementers and project evaluators take account of not just the common external constraints (e.g. lack of access to credit) but also the emerging internal constraints as discussed in this session (e.g. aspirations), then we may begin to have a greater impacts and/or gain better understanding of the limitations of our interventions.
That is Kibrom Tafere Hirfrfot and Liz Bageant in a recent Economics That Really Matters blog post recapping the recent NBER Conference on The Economics of Asset Dynamics and Poverty Traps.
I wholeheartedly agree with this sentiment. Simply suggesting that the poor should try harder is the wrong conclusion to draw from the emerging research on the psychology of poverty, hope, and aspirations in developing countries. Other than adding psychological components onto traditional interventions, a rather obvious policy implication of this research seems to be to create an expanded role for clinical psychologists (particularly child psychologists) within development programs.
The two papers presented at the NBER Conference about this topic strike me as important for development economists to consider. Jonathan de Quidt and Johannes Haushofer’s paper on depression develops an illustrative model of why economists should consider how depression impacts human behavior and economic outcomes. Travis Lybbert and Bruce Wydick’s paper on the economics of hope (a paper I’ve mentioned many times already) makes, in my mind, a very important contribution in showcasing the potential power of hope and aspirations.
Frequent readers of this blog will know that I’ve been thinking a lot about the psychology of poverty over the last year or so. Because of this, it is encouraging that researchers much more established than myself are bringing legitimacy to this line of scientific inquiry. I’ve come to the conclusion that a more complete understanding of the real-life psychological impacts poverty inflicts on people will allow for more effectively designed policies.
Additionally, this research seems to extend beyond narrow application in developing countries and into other important topic areas such as refugee resettlement policies and racial justice policies in developed countries.
Two years ago I was a senior in college and sitting in a professor’s office discussing several topics I could focus on for a senior thesis. At the time the economics of happiness was gaining a lot of momentum as a research topic. I asked my professor if I could think about the concept of hope from an economic perspective. We did some searching for relevant literature and didn’t really find much. I moved on to a different topic.
Fast forward to now. The economics of hope has a growing and promising literature. I have plans to travel to Myanmar to try and collect data to better understand this topic. As I begin to dig into the literature, I thought it would be nice to record a roadmap of sorts.
Two summary resources provide a great starting point, and much of the insights in this blog post:
- Travis Lybbert and Bruce Wydick‘s (2015) working paper on Poverty, Aspirations, and the Economics of Hope
- Ester Duflo’s (2013) talk on Hope, Aspirations, and the Design of the Fight Against Poverty
What does hope have to do with economics?
At first it may seem like there is not much connecting a light and fluffy topic like hope with cold and calculating economics. Generally economists have a lot to say about a lot of things. But hope is a topic that has historically belonged to theologians, philosophers, poets, and signer-song-writers. At second thought, however, hope is fundamental to any economic activity. Consider the words of Martin Luther:
Everything that is done in the world is done by hope. No husbandman would sow one grain of corn, if he hoped not it would grow up and become seed; no bachelor would marry a wife, if he hoped not to have children; no merchant or tradesman would set himself to work, if he did not hope to reap benefit thereby. How much more, then, does hope urge us on to everlasting life and salvation?
And John Stuart Mill:
A hopeful disposition gives a spur to the faculties and keeps all the working energies in good working order.
What we talk about when we talk about hope
There are a couple ways the word hope is used in english language and the difference between the two is subtle. Consider the difference between two sentences: “I hope it is sunny tomorrow.” and “I hope to go for a run tomorrow.” Both use the term hope but in different ways. Both terms indicate some sort of uncertainty but the second usage implies human agency. I may hope it is sunny tomorrow, but there is nothing I can do to make it sunny. I also may hope to go for a run tomorrow and I certainly can do things to make that happen. Lybbert and Wydick create a helpful figure to represent the differences between “Hope 1”, “Hope 2”, “Hopeless 1”, and “Hopeless 2”.
Hopelessness 1 is experienced by someone with both low agency over the future and low optimism about the future. This is a person who is feeling both hopeless and helpless. For example a victim of a famine who has no food availability in the future and no way to get it either. Hopelessness 2 is experienced by someone with high agency over the future but low optimism about the future. This is a person who is feeling hopeless but not helpless. For example someone who works very hard to survive but doesn’t see a future of any other way of life. Hope 1 is experienced by someone with low agency over the future but high optimism about the future. This is someone who hopes it will be sunny tomorrow. Hope 2 is experience by someone with both high agency over the future and high optimism about the future. This is someone who hopes to go for a run tomorrow.
As Lybbert and Wydick explain:
Distinguishing between these types of hope is useful, but individuals often experience hope as a combination of Hope 1 and Hope 2. Both types of hope, for example, are manifest in the case of a famine victim, or someone who is trapped, lost, or stranded, where a person may have to take painful but proactive steps to survive (internal agency) while awaiting relief or rescue (external to agency). Consider similarly the plight of someone suffering from a potentially terminal disease, in which there is some probability that a breakthrough in treating the disease may occur in the future. Survival thus depends on two events: (i) that the breakthrough occurs by time t; and (ii) that the patient is able to survive until time t. Hope for the patient thus consists of Hope 1 (hope that the breakthrough will occur) and Hope 2 (hoping to remain as healthy as is possible until the breakthrough arrives), which implies some degree of agency that may involve costs. (We might call this type of hope “Hope 1.5.”) In contrast, a person beset by hopelessness has concluded that the joint probability of these events is sufficiently dwarfed by the agency costs of survival, ensuring the unfortunate outcome.
Hope seems to matter (some evidence)
Abhijit Banerjee, Esther Duflo, Raghabendra Chattopadhyay, and Jeremy Shapiro have a (2011) working paper entitled Targeting the Hard-Core Poor: An Impact Assessment. In it they evaluate a program designed to provide development services to people who don’t (for whatever reason) take up microfinance when it is offered to them. The program transferred assets (cow, goat, chickens) worth about $100 to the ultra-poor in Murshidabad, India. The results of the program were huge! 21% increase in earned income. 15% increase in consumption. An hour more work per day. Large psychological health effects. These effects are surprising given the amount of the asset transfer. What could be happening? Why are the benefits of giving an extremely poor person in India $100 WAY more than $100? What is making this return so large? Several things could be happening:
Perhaps the asset freed up a “nutrition based poverty trap”. In such a trap wages are so low that by working all day an you would only make, say, 800 calories, far lower than the necessary 1200, or so, calories needed per day. In this type of situation you will not be able to work or work very little and you will be very unproductive and stay very poor. So perhaps an asset transfer allows you to earn a small return on the asset (i.e. the cow gives milk, the chickens lay eggs etc.) and this pushes you above the necessary 1200 calories per day. Now the return on a $100 asset transfer is magnified by the workings of the labor market that you are now able to take advantage of because you are now able to put in a full day of work. Even if the labor market wages are still very low the return from the ultra-poor asset transfer will be quite large.
This nutrition based poverty trap isn’t what seems to be happening in Murshidabad. If the people were so poor that they didn’t have enough food to eat to work for enough hours every day then by giving an asset (such as a cow), all of the extra consumption should be in the form of food. Because feeding yourself adequately is the most productive thing to do. But in this impact assessment the authors find similar increases in overall consumption (15%) and food consumption (17%). People seem to be increasing expenditures in everything, not just food. Moreover, within food consumption the ultra-poor seem to be substituting for higher priced food that is not necessarily the most calories. For example less grains, more meat. Basically if these people were starving they would have maximized the calories available with their resources.
Another possibility is a so-called “credit trap”. In other words the ultra-poor do not have the ability to gain credit (due to a lack of durable assets to use as collateral, or lack of access to a provider, etc.). This again doesn’t seem to be the case because the program in Murshidabad, India was implemented by a microcredit organization explicitly targeting these people because they couldn’t get them to borrow money. So there was a organization in the area providing credit without a restriction of having collateral.
Still another possibility is mental health or psychological health. The beneficiaries of the program recognized fewer symptoms of depression, fewer symptoms of stress, and feeling much happier. This perhaps (as hypothesized by Duflo) could be the mechanism that leads to the large returns on the $100 asset transfer to the ultra poor. The question is whether there is such thing as a “hopelessness trap” (or as Dalton, Ghosal, and Mani (2013) call an “aspirations failure”). Said differently the expectation of future poverty exacerbates current poverty.
Take for example a seamstress. There is a huge difference between the productivity between sewing by hand and having a sewing machine. Additionally there is a big difference between having a mechanical sewing machine and a manual sewing machine. Additionally, there is a difference between having one mechanical sewing machine and two mechanical sewing machines. And so on and so on. In economist speak, the production function for a seamstress has discrete steps. An investment has a threshold before it becomes profitable. The problem is you can’t buy one tenth of a machine. You have to buy the whole thing. If someone is so poor and “hopeless” that they think they will never be able to cross the critical threshold for profitability, there is little incentive to be as productive and rational as possible. Perhaps you should spend more time buying toys for your child rather than save for a sewing machine if you never think you’ll be able to save enough for a sewing machine.
Hope then is a capability (a la Amartya Sen). Hope is a fuel that makes us capable of achieving things. And it also provides motivation to invest in business, education, health, etc.
So, how do we make people hopeful?
There could be many ways, several that have been recorded in the literature so far include:
- Lori Beaman, Esther Duflo, Rohini Pande, and Petia Topalova have a paper (2012) (published in Science) showing that girls in india have higher aspirations and therefore higher education outcomes when there is a female in a leadership role in their region or area.
- Tanguy Bernard, Stefan Dercon, Kate Orkin, and Alemayehu Seyoum Taffesse have a working paper (2013) revealing that people who were shown a video of similar people succeeding in agriculture or small business were measured as having higher aspirations. Additionally there were secondary effects in improved savings, credit behavior, education investment, and time spent working.
- Paul Glewwe, Phillip Ross, and Bruce Wydick have a working paper (2015) which shows that involvement in Compassion International’s child sponsorship program lead to higher aspirations and self-esteem.
For a long time those working in development have been focusing on external constraints to economic outcomes. We always think of the obvious things like credit, or agricultural inputs, or business skills training, or health, or nutrition, etc. Perhaps it is time to think about the internal constraints to economic outcomes. Things like aspirations, beliefs, or attitudes. All things that make up what we call hope.
(There is also a theological perspective of all this. Undoubtably, there will be more on that later.)
I recently finished reading a fascinating book entitled Nudge: Improving Decisions About Health, Wealth, and Happiness. The most basic idea behind the book is everything matters. Humans are constantly influenced unconsciously by seemingly trivial details. Put simply we are always being “nudged”. This book aims to harness the ways humans are nudged and use “choice architecture” in increase our quality of life.
The book begins by outlining some of the ways humans make decisions. Using insights from the growing field of behavioral economics, the authors explain how the vast majority of humans fail to follow the rules of rational choice theory in economics. Understanding these insights is paramount to understanding how humans make decisions and how to help humans make better decisions. (If these details sound interesting to you, read the book or take a microeconomics class, I am not going to take the time to outline them here.)
I will jump to some of the unique ideas proposed in this book about how to solve some of our world’s most complex and pressing challenges. As you will see choice architecture, seems to introduce interesting and innovative ideas for families, business people, and policy makers to consider.