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Paternalism. Friend or Foe?

Tue, 31 Jan 2012 01:38:57 +0100

Readers of this blog will know that I’m a big fan of behavioral economics. I’m constantly applying its lessons to a host of development issues, from consumer finance to aid effectiveness to health care to (my personal favorite) venture capital. The list goes on and on. I find the intersection of psychology and economics so central to my thinking that I when I first encountered it at the Kennedy School I was surprised to realize it wasn’t part of the core MPAID curriculum. So surprised, in fact, I stopped by Lant Pritchett’s (our faculty director at the time) office hours to ask him why.

“It’s paternalistic,” Lant replied. Of course. Economists tend to reject paternalism, believing in the primacy of individual choice. After all, neoclassical microeconomics is based rational choice theory, which assumes that humans make decisions that maximize their welfare based on underlying preferences. If humans are perfectly rational and only they know their preferences, who is the policy maker to dictate correct decisions for the individual?

But, behavioral economics tells us that human beings are far from rational, on the contrary they make systematic errors in judgment. Hyperbolic discounting, confirmation bias, anchoring, status quo bias, availability bias, the list goes on and on (and on and on). As policy makers, we can recognize these errors and steer individuals in the “optimal” direction. But Lant and many other economists (understandably) just don’t want to go there.

Richard Thaler and Cass Sunstein, in their best selling book Nudge sidestep the issue with what they call “libertarian paternalism” -- policies designed to maintain the freedom to choose (libertarian) while recognizing cognitive limitations and “nudging” choice in the optimal direction (paternalism). Who can argue with that?

Esther Duflo and Ahbijit Banerjee take a different point of view in their instant classic Poor Economics. Paternalism is ubiquitous, they say. Those of us who live in the comfort of the rich world are beneficiaries of it every day, in myriad forms including clean water, social security checks, and compulsory education (which incidentally dates back as far as the first century AD). They go as far as to say “it [paternalism] not only ensures that we take care of ourselves better than we would if we had to be on top of every decision, but also, by freeing us from having to think about these issues, it gives us the mental space we need to focus on the rest of our lives.”

Thaler and Sunstein make another compelling point: nudges are inevitable. You can’t give someone multiple choices for a health care plan without influencing their decision merely by the ordering of options. If influencing choice is unavoidable, shouldn’t we do so with an understanding of cognitive biases and a sense of the best choice for the average chooser?

Ultimately, I side with Duflo and Banerjee. Everywhere in our lives, we trust professionals to do our work for us (who wants to sort out the tax code?). Why should policy be any different? Whether it's understanding the sea of relevant information or understanding how our cognitive biases lead us astray, we trust third parties to make decisions for us. As with choosing an accountant, in most countries we elect politicians that we trust to enact policies that are in our best interests. If those individuals fail to do so, there’s always another election around the corner.

I know this is a contentious topic, and of course, I’d love to hear what the rest of you think.

The Real Value in Conditional Cash Transfers

Tue, 24 Jan 2012 16:50:11 +0100

I generally resist summarizing an interesting post or article, but occasionally one comes along that is just too good to risk losing in a Twitter stream. I read a fantastic blog post about conditional cash transfers (CCTs) the other day by Lant Pritchett, one of my former professors at the Kennedy School. It’s pretty technical and sometimes Lant is hard to follow if you’re not a trained economist (I shudder to think how much I missed in his class my first semester), so it seems all the more worthwhile to highlight the key points of his post here.

Of course many of you are familiar with PROGRESA, a successful Mexican conditional cash transfer program whose model has spread throughout the world. One of the impressive things about PROGRESA is that it was rolled out randomly, which allowed for rigorous evaluation of the program. Lant makes the case that in focusing on evidence and outcomes related to the conditionality of CCTs, many economists and practitioners are completely missing the point. The goal of the conditionality of PROGRESA wasn’t to change education related behaviors. On the contrary it was to make cash transfers themselves politically feasible. Politicians may object to cash transfers for philosophical reasons or try to manipulate them for political gain. Targeted conditional cash transfers, with pretty education related bows tied around them, are much harder to fight politically.

From Lant’s post:

“… one common narrative—that the scaling up of CCTs is a good example of evidence based policy making because the use of randomization in the design of PROGRESA provided solid evidence that it was an effective program and hence other countries adopted a CCT because of this solid evidence—has it almost exactly backwards. The impact evaluation proved that PROGRESA was cost ineffective if it was considered as a mechanism to increase schooling. Everyone involved in the design knew this. They were not imposing the conditionality to get the behavior conditioned upon, but to get the transfer itself.

What PROGRESA proved that was convincing was about the political effectiveness of conditions to the implementation and support of cash transfers. Adding conditions to cash transfers allowed a well-designed cash transfer to have political traction against opponents.”

But from a technical perspective, conditionality can pose problems of its own. A neoclassical economist would argue that imposing conditionality on a cash transfer is not welfare maximizing. It would be better to just give the households cash, since they are best positioned to allocate funds where they are most needed. But, if the households receiving the CCTs are already sending their kids to school, a CCT is just a cash transfer as far as the household is concerned. This was actually the case with PROGRESA, and what made it such a brilliant policy.

Again from Lant:

"The genius of the CCTs in Mexico and in Brazil was not about how to get kids in school but rather about how to use the fact that almost all kids already were in school to generate welfare loss minimizing but nevertheless politically powerful symbolism to expand cash transfers."

Link to the full post here. It gets quite technical (I will admit I had to read it twice), but I promise it’s well worth it.

There’s another critical underlying point. Lant's post serves as an important reminder: the current obsession with evidence can easily lead us astray. Good development programs are not just technically correct, but also politically supportable and administratively feasible. Sometimes the correct program may be technically inferior to alternatives (i.e. it is not the most efficient way to achieve the desired outcomes), but those alternatives are only relevant to academics if they aren’t implementable for political or capacity reasons. Evidence is important, but it's not everything.

USAID's Development Innovation Ventures (DIV)

Fri, 13 Jan 2012 15:28:48 +0100

When I decided to leave the technology industry to pursue my MPAID, I did not intend to focus on the application of technology to international development. On the contrary, I was highly suspicious of that trend. When I stepped off the plane in Liberia during my summer internship, I had the task of assessing the establishment a wireless broadband network. But, the country didn’t have electricity. The exercise seemed borderline absurd.

Then I sat at my desk inside the president’s office, operating at 25% productivity due to the archaic systems in place. And I spent more time thinking about the seemingly impossible task of providing health services in a country with one trained doctor for every thirty thousand people.

It didn’t take long for me to start thinking that much of the historical approach to development amounted to squeezing a square peg into a round hole. In other words, we’d been trying to replicate systems appropriate to more developed countries in environments that were fundamentally constrained (in human and fiscal terms). If only we could throw more money at the problem (a la Jeff Sachs), it would work! But, whether for lack of money or for lack of proper strategies, we hadn’t managed to bring basic services to the global poor despite decades of trying.

So the things that started to get me excited became the solutions that proffered step function productivity improvements, solutions that redefined rather than patched the systems in place; Innovative solutions that would allow us to realize desired development outcomes in light of hampered, rather than ideal, circumstances (touched on in an older post here). Ultimately, technology-driven solutions represent only a slice of the spectrum of possibilities. But, technology is obviously a huge enabler of productivity improvements. As I looked at the problems at hand, I only became more convinced of the importance of technology as a catalyst for development. And so here I am.

From that conviction, it’s easy to see why I am a huge fan of Development Innovation Ventures, a USAID initiative launched in October 2010 (I realize I am very late to the game here. But Fall 2010 also happens to be when I got married, went on a honeymoon, moved, and found out I was pregnant -- so I fell off the development map). Inspired by the VC model, DIV provides grants at three stages -- coinciding with seed, Series A, and Series B. Most compelling is their funding criteria:

[to fund solutions] that are several times more cost effective than current practice. These ideas do not have to be technological solutions, but also new business models, new processes, or even novel combinations of tried and true techniques.

Furthermore DIV demands rigorous evaluation to determine whether targeted efficiency gains are actually realized. Scalability is another key criteria, which was of course also a mantra for us at Google.org. In addition to embracing a model that I’m fully bought into, DIV takes advantage of the expertise at USAID to evaluate applicants (they also draw on external experts). Doing so is critical to assessing whether conceptually sexy ideas are actually useful on the ground.

I’m very excited to see where DIV will go from here. So far, many of their grantees are the usual suspects. But that’s what I’d expect, given that they’ve only been at it for about a year. I’m hoping to see more Stage 1 investments with local entrepreneurs in the future. I think DIV is hoping for that too. Put more bluntly, those of you with big ideas seeking funding should consider applying. They accept applications on a rolling basis, and their current round closes this coming Monday. Those of you with connections to local entrepreneurs, please spread the word!

Hello World (Take Two)

Tue, 10 Jan 2012 05:52:07 +0100

It’s been nearly a year since my last post, and in all sincerity, over a year and a half since I’ve blogged in earnest. Despite my best intentions of keeping up this blog upon graduation from the Kennedy school, life swept me away. To be fair, I’ve been busy. I planned two weddings. My husband and I bought and remodeled a home. And most importantly, I brought an incredible little person into the world last May.

With the dust now settling on this new era of my personal life, it’s finally time to get back to it. I’m very much looking forward to writing again, and all of the intensified thinking that comes along with it. And of course, I’m hoping that my amazing network of development tweeps will continue to push my thinking.

Here’s to a very exciting year of intellectual and professional growth. I hope some of you are still out there and still following.

Cheers,

Jenny

Criticizing Clooney

Wed, 12 Jan 2011 07:51:45 +0100

Not shockingly, the presence of a celebrity and a high profile development intervention is getting a lot of attention in the development twitterverse/blogosphere. The latest is George Clooney's efforts in Sudan. As I think we all know, Clooney's Not on Our Watch has partnered with a handful of organizations, including the Enough Project, the United Nations UNITAR Operational Satellite Applications Program (UNOSAT), the Harvard Humanitarian Initiative, and Google for the Satellite Sentinel project. Right about now I should note that I am a Google employee and all thoughts expressed herein are solely my own.

The project will use satellite imagery to monitor activity in violence prone regions in Sudan. Personally, I was immediately impressed by the collaboration, and not just because the entire thing was executed in three months. It's an example of a diverse set of players working together on a complicated project that leverages each of their core competencies. The UN collects and analyzes the raw satellite imagery. Google is providing the map of Southern Sudan. The Harvard Humanitarian Initiative corroborates the data with on the ground reports. Finally, The Enough Project and Not on Our Watch put pressure on external figures to act.

With the start of Southern Sudan's referendum last Sunday, it's not shocking that George Clooney is all over the news. He's a celebrity. Americans are obsessed with celebrities. What I found more surprising, though on second thought I suppose is not shocking at all, is the negative reaction from the development twitterverse and blogosphere. See Laurenist and Texas in Africa's blog postings, as well as Foreign Policy's article on the matter. It seems to me that the development community has a knee-jerk negative reaction to celebrity involvement in any development / aid initiative, but the issues raised don't seem to have much teeth to them.

Two criticisms in particular raised legitimate concern in my mind, but upon further investigation didn't really stand up. 1) the chance of violence is actually relatively low, so there's no need for this type of intervention in the first place, and 2) the data that the project is collecting isn't granular enough to be of use. I'll take up each in turn.

First on the question of the likelihood of violence, I turn to a recent interview with Roger Winter. Mr. Winter has been working in Sudan for thirty years and helped negotiate the 2005 Comprehensive Peace Agreement (CPA). Here's a link to an extensive NYT article on him from 2008. He's one of the world's foremost experts on Sudan, and certainly has deep insight into the political sentiments behind the CPA. In the interview Winters says, "I think it is very clear that Khartom does not wish to see the Abyei referendum happen. ...The failure, in my view, to have a meaningful Abyei referendum, will result in violence. There is no question in my mind that it will result in violence and the point is, that if it results in violence, it is my view, that the same consequence that happened in 1972 is liable to happen again -- that is, violence will spark off more violence and that could undermine the entire consequence of the referendum on the South." Sure this is one man's opinion, and I'm certainly not versed to come down on either side of this debate, but I think it's difficult to discount the Sentinel project based on the argument that there isn't any real threat to renewed violence.

On the second issue of the granularity of the data. First off, the imagery is high resolution (<50 sq cm/pixel). And even if it weren't, I have a hard time understanding why satellite imagery couldn't be useful even if you can't read a license plate or identify a specific person. It isn't just a matter of identifying who is at fault for what. It would still be useful to corroborate on the ground reports, identification of population movements/changes in land use/mass graves/burned villages, or provide alternative to existing maps for organizations working on the ground, among other things. So I'm not quite buying the satellite imagery is useless argument either. Maybe there was something about Eyes on Darfur that makes it a failure that I'm unaware of? This paper on the use of satellite imagery in monitoring human rights abuse (which is admittedly devoid of rigor, but how does one rigorously evaluate such an initiative?) doesn't support that conclusion.

What strikes me in the discourse on Twitter lately is that we're so quick to criticize anything with celebrity involvement and jump on the snarky commentary bandwagon. Personally I see significant value in having a celebrity like Clooney associated with an initiative where public opinion matters. America's obsession with celebrity is unfortunate. At least this redirects that attention to matters of more substance than Clooney's personal life.

How will you measure your life?

Thu, 19 Aug 2010 17:48:55 +0100

It's not often I blog about an article I've read without adding substantial commentary of my own, but I read one recently that really struck a chord with me. As my recent posts make clear, I've been thinking a lot about what's important in life, and the values and norms that have evolved in industrialized societies. Something else happened that also heightened the article's impact on me: a week and a half ago, my grandmother passed away.

The article is entitled "How will you measure your life?" by Christian Christensen, an HBS professor. A few excerpts in particular stood out for me (emphasis in bold is mine):

"When people who have a high need for achievement have an extra half hour of time or an extra ounce of energy, they’ll unconsciously allocate it to activities that yield the most tangible accomplishments. And our careers provide the most concrete evidence that we’re moving forward. ...

In contrast, investing time and energy in your relationship with your spouse and children typically doesn’t offer that same immediate sense of achievement. ...

You can neglect your relationship with your spouse, and on a day-to-day basis, it doesn’t seem as if things are deteriorating. People who are driven to excel have this unconscious propensity to underinvest in their families and overinvest in their careers—even though intimate and loving relationships with their families are the most powerful and enduring source of happiness."

Christensen goes on (yes he is a very religious man):

"I’ve concluded that the metric by which God will assess my life isn’t dollars but the individual people whose lives I’ve touched. I think that’s the way it will work for us all. Don’t worry about the level of individual prominence you have achieved; worry about the individuals you have helped become better people."

I included the two sentences I bolded in the the eulogy I delivered at my grandmother's funeral. And I went on to say that by these measures, my grandmother -- a woman with no education who nurtured all who crossed her path -- realized a level of success in her life that most of us can only hope for.

Please read the article. It's a wake up call all too many of us probably need. Then do me a favor. Call your grandmother, if you're lucky enough to still have one.

Economists and the New York Times Behaving Badly

Sun, 25 Jul 2010 01:43:34 +0100

There was a New York Times op-ed last week entitled Economics Behaving Badly which argues that politicians are becoming over-reliant on behavioral economics to solve problems it was never meant to solve.

While I agree with the broader points of the article, I'm amazed to see the two professors (one of economics and psychology) write -- and the New York times publish -- a piece with blatant inaccuracies.

From the article:

As policymakers use it to devise programs, it’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address. Indeed, it seems in some cases that behavioral economics is being used as a political expedient, allowing policymakers to avoid painful but more effective solutions rooted in traditional economics.

Take, for example, our nation’s obesity epidemic. The fashionable response, based on the belief that better information can lead to better behavior, is to influence consumers through things like calorie labeling — for instance, there’s a mandate in the health care reform act requiring restaurant chains to post the number of calories in their dishes.

Calorie labeling is a good thing; dieters should know more about the foods they are eating. But studies of New York City’s attempt at calorie posting have found that it has had little impact on dieters’ choices.

So, here's what's so incredible about this. A mandate requiring restaurant chains to post calories is not a behavioral economics solution. It's a traditional economics solution. Even more incredibly, the reason that studies have found that calorie posting has little impact on dieters choices is, I would bet money on it, largely due to behavioral factors.

Let me explain. Calorie labeling is rooted in the belief that people don't understand the health implications of their decisions. They need more information. This is what economists call an information asymmetry. It's a market failure. Calorie labeling addresses the information asymmetry. Information campaigns are a traditional tool to address a market failure.

Now why don't dieters make different decisions when given this information? Surely the price differential between healthy and unhealthy food is part of the answer. But, the diet and fitness industry is enormous. People are clearly willing to pay money to slim down. So, why don't they do it up front in their diet choices? Why do we continually make New Year's resolutions to lose weight, and fail do to so? These questions are rooted squarely in behavioral economics.

Which is to say, the reason that calorie posting (a traditional economics intervention) had little impact on dieter's choices is almost certainly attributable in part to the fact that the intervention did not take behavioral economic into account.

Ironic.

Spawned by TED: Jessica Jackley on Philanthropic Engagement

Tue, 20 Jul 2010 20:44:37 +0100

Jessica Jackely, co-founder of Kiva and the newly launched Profounder, gave an intensely personal talk at TEDGlobal last week. It was met with a standing ovation and actually, it was the single talk that brought tears to my eyes. In addition to conveying her deep passion for development, Jessica had some very insightful things to say about the psychology of philanthropy and the mechanisms with which those who give engage with those who receive.

According to Jackley, the exchange that characterizes the way many give today can get in the way of the thing we want most. We often give more to alleviate our own sense of guilt than out of a desire to truly help. Doing something, she says, should not be a business transaction.

Furthermore, the way we tell, share, and participate in stories is of deep importance. The distinction between us and them and rich and poor are false dichotomies. We shouldn’t think about the world along these lines, because it promotes the wrong mindset towards engagement.

Jessica goes on to say that the best way to change people’s lives is to give them control over what they believe is important. We should be engage in a way that validates dignity and promotes respect (I imagine so many Tweeps doing cartwheels of joy at that statement).

Lending, rather than giving, enables this according to Jackley. Whereas giving is transactional, lending fosters engagement through ongoing dialogue and continued attention. Put succinctly, (Love + Money) > Money.

I think Jessica’s general points about philanthropic motivations and engagement are excellent. Personally, I’ve been fascinated by the psychology of philanthropy of late. What motivates people give? How do they make lending decisions? What do they want in return? These are critical questions for understanding the aid community. Furthermore, I think she’s right on point that we should engage in a way that empowers, rather than paternalistically. But I’m not sure I agree with her final conclusion about lending vs. giving.

First, I don’t think that engaging in a way that validates dignity and gives people control over their lives and grant making are mutually exclusive. Not all of the things done in development are market oriented, and I believe there should be a continued role in supporting non-profit activities. However, in tune with Jessica’s points, I think that individuals on the ground should be empowered to determine and execute on those activities. This validates dignity while also supporting a broader scope of initiatives than would be the case if the focus were on investments that bring a return.

Secondly, though the Kiva model certainly achieves Jessica’s first objective of empowering people to do what they believe is important, I’m not convinced a Kiva transaction is that different from just giving away money. When we talk about social investing, I think an important question to ask is, “what’s the investor’s alternative?” It is a very different thing if that alternative is giving money to charity or investing in a mutual fund. I think in many cases, especially cases involving small amounts, people make decisions as if they were simply giving money away. When someone goes on Kiva, I don’t think they’re determining to whom to loan money based on creditworthiness (it would be impossible for someone sitting at a computer in London to assess an entrepreneur and opportunity in Nairobi at any rate). Rather, I think they’re doing it based on a picture and to Jessica’s point, the story that the individual brings. Their motivation is more about charity and less about investment. Perhaps that's just fine, but I think it's a distinction worth noting -- especially when looking to crowdsourcing for larger sums (which is what Profounder does).

In my mind, it’s not the distinction between giving and lending that’s notable when it comes to Kiva, but the distinction between empowering and paternalistic interventions.

Bravo to Jessica for one hell of a TED talk, at any rate!

Spawned by TED: Ethan Zuckerman on the Internet and Imaginary Cosmopolitanism

Tue, 20 Jul 2010 01:36:18 +0100

Ethan Zuckerman is a Senior Researcher at the Berkman Center for Internet and Society at the Harvard Law School. Incredibly and embarrassingly, I never managed to link with the Berkman Center during my time in Cambridge, so I was thrilled to see Ethan would be speaking at TEDGlobal this past week. His talk was another of the highlights of the conference, and one of particular relevance for those of us interested in how the access to information that the Internet affords impacts development.

In essence Ethan said that while we perceive the Internet to indicate a globally connected world, in reality the information we consume is confined to like-minded microcosms. We end up in “filter bubbles,” interacting with people we already know, which isn’t how the Internet was supposed to be. The media, he says, is less global by the day. New media isn’t helping us that much after all.

The reason? The tools we use to access the information available to us via the Internet are great at helping us find the information we’re looking for, but fail to engineer serendipitous encounters with information you don’t know you need. We look to our social network for this type of content, and as a consequence find ourselves in like-minded flocks.

This is an issue because real and interesting problems global in scale and scope, require global conversations to get to global solutions.

The way to get out, Zuckerman says, is to find someone who will bump you out of your flock. Bridge figures like Erik Hersman (nice shout out to @whiteafrican in his talk!) can play this role, since are connected to multiple worlds. He also says we should cultivate xenophiles, who will cross the bridge and bring the message back home.

While this all makes great sense to me, I wonder if the bridge figures and xenophiles would only take us so far. This is actually something I wrote about awhile back in a blog posting here. As my former professor David King explained, the world is getting narrower as the information we have access to becomes broader. The more we have to process, the more we’re forced to rely on more efficient mechanisms to process that information. In doing so we succumb to confirmation bias, tuning into channels that confirm what we already believe. By contrast when we only had a few channels to tune into (i.e. before the era of cable television), we by necessity of the diversity of the audience consumed a diversity of information.

If this is true (and it makes sense to me) then we’d seek out bridge figures who would only bump us so far out of the flock. My hunch is the reality of our psychology will make addressing this problem even harder than Ethan suggests.

Spawned by TED: Tim Jackson on Economic Growth, Sustainability, and Institutions

Tue, 20 Jul 2010 14:07:24 +0100

Tim Jackson, who among other things is the UK government’s advisor on sustainable development, raised an important issue at TEDGlobal this week in Oxford. At least I thought so, because it struck at one of the central things on my mind these days (outlined in a recent blog posting here).

Jackson makes two points, one obvious and the other less so. The first is that economic growth is fundamentally constrained by the resources of this planet. Our way out to date has been a blind faith in our ability to improve efficiency and build technology, but the reality is that we can’t keep going on like this forever. We need to stop looking to economic growth as a proxy for human prosperity. We’ve grown our economies so much already that we risk undermining the very prosperity we seek.

His less obvious point is the one I find fascinating and critical. The institutions we’ve created – capitalism in particular – has negative implications for our culture, values, and norms. As he put it so eloquently, which was instantly met with applause from the audience and retweeted widely:

“We spend money we don’t have, on things we don’t need, to make impressions that don’t last, on people we don’t care about.”

Why do we do this? Jackson says that human beings experience tension between values in two dimensions: novelty-seeking behavior vs. tradition / culture preservation and self-regarding behavior vs. other regarding behavior. Our institutions, however, encourage us to operate in only one quadrant of ourselves: the self-regarding, novelty seeking one. Taking this into account, he says that addressing our issue of unsustainable economic growth isn’t about changing human nature, it’s about changing out institutions to better reflect the full spectrum of human nature. It’s not about overthrowing capitalism, but broadening it to more fully reflect our values.

Unfortunately Jackson didn’t have time left in his 18 minutes to elaborate much on what these institutions would look like, but I’m looking forward to reading his book Prosperity Without Growth: Economics for a Finite Planet (anyone want to read it with me?). From what I could glean, he’s talking about social enterprise.

I think one of the central challenges in shifting institutional structures is the enormity of the information asymmetry and the reality of the human mind. Put simply, do we really think that people can access all of the relevant environmental and ethical information about the products they buy? And even if they could, do we actually think they could process it all?

Usually when consumers can’t possibly assess such things, the government comes to the rescue. This is why lawyers must pass the bar, doctors are board certified, and the food and drug administration exists. These organizations protect us because we can’t possibly make informed decisions ourselves.

So I’m curious how Jackson addresses these challenges when it comes to shifting institutions. There will certainly be more posts on this topic as I read his book in the coming weeks.