Psychology and development economics

"Psychology and Development Economics," Yrjö Jahnsson Foundation 50th Anniversary Conference on Economic Institutions and Behavioral Economics, edited by Peter Diamond and Hannu Vertiainen, Princeton University Press.

 In the standard economic model, people are unbounded in their ability to think through problems. Regardless of complexity, they can costlessly figure out the optimal choice.  They are also unbounded in their self-control. In contrast to the traditional model, a growing body of research interprets economic phenomena with a more modest view of human behavior.  In this alternative conception, individuals are bounded in the above-mentioned dimensions (and more).  Practically, this conception begins with the rich understanding of human behavior that experimental psychologists have developed that focuses on the bounds on cognitive ability, self-control, attention and self-interest. Recent empirical work suggests the importance of these psychological insights for real behavior in contexts that economists care about.

 I begin by highlighting some areas where the existing research can be directly applied to development. The bulk of work on savings can be translated into understanding savings institutions and behavior in developing countries. Additionally, the insights about self-control have some direct links to understanding education, and the behavioral approach also appears to add some insight to the large body of research on the diffusion of innovation. The question of how (and when) to evaluate the impact of development policies can also be better understood. Yet since psychology is only beginning to make inroads into applied areas of economics, beyond these areas, few papers explicitly deal with psychology and development. I therefore speculate about additional specific areas where psychology could be useful in the future: poverty traps, conflict, social preferences and corruption, and research on the psychology of the poor. (Introduction, edited).

(My publication)Posted:Jun 01 2004, 12:00 AM by smullainathan
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