Industry

'It’s also true that poverty is a cognitive tax'

Varun Gauri  

The World Bank’s World Development Report 2015 focuses on the application of behavioural economics to development policy. The focus, since people tend to be emotional beings rather than geniuses or ideal humans, is on consideration of human factors and social norms for policy design. The Report’s lead author Varun Gauri spoke to The Hindu. Excerpts.

There’s a whole new way of looking at poverty and development policy. What is it?

There are two main topics... The first is the idea that poverty is not only the absence of resources but it’s a certain mindset. It’s a perspective on the choices that are in front of you. We typically think that if you are poor you don’t have the money to buy this or that and of course that is right. That is very important and we need to keep focusing on the material side of poverty. But it is also true that poverty is a cognitive tax. It depletes your mental resources. You and I are fortunate enough to have stable jobs. When we want to get lunch we know where to go. We know where our office is. When you are very poor on the street you have a lot of decisions to make during the course of the day. Where do I get my supplies, where do I sell, where do I get my food, is someone going to harass me, how do I save… If we want to save we go to the bank we can automatically make a transfer to our account… one study found that here in India the same sugarcane farmer had ten IQ points higher when they had cash during the time of the harvest compared to when they didn’t have cash.

You are saying poverty is not just a lack of resources but also how this makes individuals behave…

Yes, there’s something that people call the scarcity mindset. If money or time is scarce you very much focus on what you have to get done which is important for attacking that problem but at the exclusion of other things. The long-term perspective, other challenges you pay less attention to. So, we have known about this for some time and we now have evidence to say that scarcity actually affects fluid intelligence and executive function. Executive function is self-control basically. This matters a lot… There are times when you are particularly pressed. Like the sugarcane farmer before the harvest they don’t have much money they are poor. After the harvest they certainly have substantially more resources. You can see from the findings that they are much more likely to take out loans before the harvest. So that’s trying to point out that poverty is kind of a mindset. There are times when you are particularly bandwidth-depleted.

What’s the policy implication of this new set of insights?

The policy implication is that we need to support decisions when people make them under times when their bandwidth is depleted. We try to move the decision out of periods when their bandwidth is less scarce. One example of this is from Columbia where there is a conditional cash transfer programme for parents when they send their kids to school. As one variant to the programme they held back one-third of the transfers and gave them lump sum with interest right before school decisions were made. They changed the timing and this had an impact on enrolment because people could have been saving the money each month but it was hard to remember the same. But if you give them the money all at once it is easier to enroll your kids in school.

What are the policy learnings for India from the understanding that poverty is a scarcity mindset?

Implications for India and policy makers generally is that a policy tool kit is much wider than they typically think. You typically think that if you want to get people to do something we provide resources and information. That’s fine we should keep doing that. It is important. But it is really crucial to also think about mindsets. In the context of sanitation we need to think about how for Swach Bharat the key idea is behaviour change. You have to get people to use the latrines. It’s not enough to provide the resources and information. We need to do that. But we need to be thinking about what is the mindset with respect to sanitation. Why would a person use a latrine versus going outside in public. That’s partly a social norm. You have to build a new social norm. We have to think about the model of what causes diseases. People have a mindset about what causes diseases. They may be wrong about it. You can address that. They may change their behaviour. That’s the key idea. Typically we say things like let’s build financial institutions let people decide how much to save. How much to save for themselves, how much to save for their daughters’ education, how much to save for health emergency, how much to save for their retirement perhaps…Then Government steps back. It says you decide. Some times that’s not enough. We can change the choice environment to help people make better decisions for themselves. People have a hard time remembering they have to save if they are poor. Or if you hare trying to change your behaviour…you want to make the right choice but it is hard to follow through.

How can the Swacch Bharat focus on changing mindsets and behaviour?

One is to focus on social emotions and to begin to show to people that open defecation is problematic for food safety. There is a technique in which food facilitators will take people out to the field and put some food next to some defecation and watch the flies go back and forth. Apologies for that topic but when you focus the mind and see it then that can change behaviour.

You are saying it is not enough to just know something it has to be demonstrated to you for you to adopt it…

Yes, you have to focus…it’s what people pay attention to. Two, is the idea of collective promise. Villages can say together that we all promise not to do this and make a declaration in public. The point there is that why should you use this if no one else is. It’s stinky it’s dark maybe dangerous. So to reap the benefits everybody has to do it together. If you all have to stand and declare that is another way to do it. A third is to think about what social norms are. Social norms have two components. The first is the statement that you ought to do something. The second is the fact that many people are in fact doing it. There’s a great experiment on drinking in the Princeton University campus in which students were asked how much other students drink and they overestimated how much other students were drinking. Then, they randomly told some people, exposed them to the idea that in fact other people are drinking less. Then six months later these people themselves started drinking less. So people want to fit in. With sanitation or Swach Bharat if you can show many other people are starting to change their behaviour they themselves may start to change their behaviour because this will generate a new social norm. So when we do the monitoring and evaluation in Swach Bharat we need to sort of think of not only as monitoring and evaluation but a feedback mechanism to people to show that in fact the norms are changing. That itself is a potential intervention. Then, we also need to think about the messaging. We need to make sure we tell people what to do not just what not to do.

When it comes to preventive health messages that are framed in behaviourial economics in gain framed messages, the good things that are going to happen, and loss framed messages, the bad things that are going to happen. The gain from the messages are typically more powerful. So if you have to give a flu shot for instance and I tell you it’s a very dangerous disease this year you might not get it but if I tell you that the nurse is very funny, she tells good jokes, she will give you a little candy then suddenly it is the positive... So you need to find positive motivation here too like recognition, words, possibly candies…you need to think about this kind of thing.

For a country of the scale of India such interventions would need tremendous training and change in mindsets of health workers and policy makers and implementers in general…

That’s a powerful issue too. Policy makers because they think about taxes, subsidies, resources, institutions…that’s fine but if the agenda is to succeed…the long term goal is to get policy makers to change their own mindsets. We also in the report try to illustrate the fact that it is not just poor people who have to think automatically but also World Bank staff. So we did a survey of randomly selected World Bank staff and we ran some classical behaviourial economists tests and we found that they had the same biases as other people in the world. One of them was about let’s call cultural cognition which is the idea that we have the mental model that filters the data that we get… we asked the world bank staff their political views on wage equality … we said do we need some wage inequality to motivate effort and World Bank staff are more likely to get the answer wrong to believe that minimum wage does not raise poverty rates even though the data in this version says that it does lead to wage inequality. In other words, it conflicted with their political bias. So that’s an example. DFID [Department for International Development] did the same thing and had the same results. So I think that Governments can do this too. Governments should recognize their own biases. World Bank has biases…everyone has biases…experts have biases too. There’s a role for everyone to think through what their own biases are and there are some techniques to de-bias. One is what’s called red-teaming and this is the idea of war games. Before you make a decision have one side argue this and another side argue that. The decision maker looks and says…this leverages the idea that people are natural lawyers and not natural scientists and people are motivated to make the best arguments. Evolutionary psychologists would tell you that we have reason to persuade our group. That’s the function of reason.

We can also taste-test our own products in Governments. The White House in the US should have taste-tested the website of Obamacare before they rolled it out. They would have avoided a lot of problems if they had signed up for their own programmes. In development we can do that too. We should try to test how hard it is to sign up for a programme. It might be very very hard…When you put yourself in the position of the user that also can eliminate some biases. For the poverty question they should see how it is to be in that situation to be suffering a cognitive tax and trying to deal with their own programmes.

To take this out of theory, Rahul Gandhi seems to be trying to spend time in poor people’s homes…why is he failing to make a noticeable impact on policy?

The key point is it’s not enough to live in a village. They key point is to be in that situation. Am not talking about Rahul Gandhi but it is not enough to go taste the food you have to be in that situation in which you have to face the decision and the choice...how do I actually sign up for this programme when I have …time constraint, poverty constraint and see how you manage and think about what would make it easier for you to adopt a certain behaviour a certain choice.

Are there examples in other countries where this has been done ?

In the contemporary setting … private industry does it all the time. You are rolling out a new iPhone you actually try it out as a user before you send it out. … [It’s] called dog-fooding in which even if you are a maker of dog food you taste your own dog food…it’s that simple and private industry does it constantly.

What about the flipside of policy tools that could be used for mis-shaping mindsets or behaviour—using stigma to blame individuals such as on social media or in political campaigns, for systemic problems, or an external enemy to generate patriotic support for a repressive government. Can there be an antidote?

Social identity can be used for good or ill. These are just tools. Like taxes you could use them for good or ill. You can build good institutions. You can build bad institutions. In using these you need to keep in mind the right purposes.

The problem comes when the policy maker’s definition of good doesn’t match that of the others.

It’s a challenging question and there is no simple answer. You need to get people to slow down their decision-making and thinking. Some times when people jump on a bandwagon they are thinking too fast. And, one of the points in the report is that we have these two systems of thinking. Thinking automatically and thinking analytically and deliberatively. And some of the time thinking analytically is very useful. Governments or any group trying to motivate you they try to make you think quickly. So then it’s good to slow things down. One way is to ask for evidence and say…what is your claim, what is the evidence for it…show me. Another way to slow down …here’s an example …people in the US were asked for their views on some controversial topics…when there were sanctions on Iran… when people were asked why they believe this they became immediately more argumentative and the polarization increased…and when they were asked to explain how this works they thought about it … and the polarisation slowed down. When you slow down the thinking, polarization and extreme views can be too…

Which agent is the right one to slowdown thinking in such situations?

Could be another branch of Government, it could be an opposition party, it could be the courts…courts are very good at slowing things down….civil society…media. It is the media’s job to ask for evidence.

Are many countries adopting the behaviour-informed approach to policy-making ?

There are a variety of things that one can do using behaviourial economics. They are starting to be visible in many places in the world. The UK Government now has a behaviourial insights team. The White House has one. In Singapore, Malaysia and Germany too and then in the World Bank also we are setting up a behaviourial insights unit to help the Governments think about we can target mindsets as a new kind of lever for policy making.

It is also being said that poverty travels generations…

That’s the other dimension of poverty, early childhood development. Importance of helping children when they are very young. Research is relatively preliminary in this area, particularly in developing countries but from what we can tell the amount of socio-emotional support that parents give kids is more or less similar between high HDI [Human Development Index] countries and low HDI countries. But the cognitive stimulation that parents from low HDI countries get is relatively low. They don’t necessarily talk to their kids that much. Verbal stimulation is very important at a young age. So that’s not education policy. That’s parenting style and parenting practice. We can focus on them by simply encouraging people to talk to their kids more to make a difference. There’s a very powerful study from Jamaica in which some parents were given some support in doing precisely this and others were not randomly. Then, they followed up with the kids 20 years later. That had an impact on education and earnings 20 years later. So we know from a randomized study that this kind of intervention can help and we should really do it where we can.




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Printable version | Dec 2, 2021 8:18:04 AM | https://www.thehindu.com/business/Industry/poverty-is-a-cognitive-tax-varun-gauri/article7319032.ece

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