A core insight of behavioral economics is that we are “fast thinkers”; very little human thinking resembles the rational, deliberate type that charac-terizes homo economicus. What is less well recognized is that our innate reliance on cognitive shortcuts means that mental models—categories, concepts, narratives, and worldviews—profoundly influence our decision making by unconsciously shaping what we perceive and the “toolbox” of strategies we draw on to respond. Many researchers have connected this idea to economic development, yet they rarely identify their work as “behavioral” economics. We use recent research to show how a second strand of behavioral economics illuminates the tight interlinkages between preferences, culture, and institutions and brings the discipline almost full circle back to eighteenth- and nineteenth-century perspectives. We caution against the strong reductionist tendencies that attempt to squeeze sociological influences on decision making into a rational-agent model.
The Making of Behavioral Development Economics
Allison Demeritt is a PhD candidate at the University of Washington and most recently served on the Core Team for the World Bank’s World Development Report 2015. Her primary research interests include institutional and organizational dynamics, public education, and the intersection of economic development and culture. Much of her work forges connections between economic and sociological approaches to decision making. She is a coauthor of numerous large-scale studies of education systems and previously served as a public finance analyst for an investment bank and as a product manager at Amazon.com.
Karla Hoff is a World Bank lead economist and a Columbia University visiting professor. She was codirector of the World Development Report 2015: Mind, Society, and Behavior. Her experiments in India show how caste affects how people see themselves, their ability to perform, and their social solidarity. Social constructions can sustain “equilibrium fictions”—differences in performance between groups that are intrinsically the same. She has theoretically investigated market failures and coordination failures, including underinvestment in learning in infant industries, corruption in the former Soviet Union, and polarized neighborhoods: low-income households in disorderly neighborhoods with low homeownership rates, and middle- and high-income households in orderly neighborhoods with high homeownership rates.
Allison Demeritt, Karla Hoff; The Making of Behavioral Development Economics. History of Political Economy 1 December 2018; 50 (S1): 303–322. doi: https://doi.org/10.1215/00182702-7034004
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