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Sebastian Roing

Out of the box and into this world: behavioural economics and international development

Studies show that people often make bad decisions. Annoyingly bad decisions, for annoyingly petty reasons. Like that time you procrastinated getting back to a friend, for no obvious reason, and it turned out you missed out on a nice dinner, an evening at the pub or some such. In fact, you probably didn’t need studies to inform you that you sometimes make bad decisions. You knew that perfectly well already.

But there is an incredible value to knowing people, in general, are not rational decision-makers. And there is an even higher value to knowing what specific biases influence their decisions and what lapses in judgement people are prone to commit. This value consists in being able to design policy interventions that 

, flagship publication of the World Bank. In this blog article I will outline the thinking behind the WDR and highlight a few promising opportunities for low-cost interventions.

 looks at how small changes in the costs of applying to college affected application rates for students from low-income households. The small changes in costs originated from score reports of standardized tests, such as the ACT, that have to be sent by the test administrator directly to American colleges. In this case, the number of score reports that were sent free of charge increased from 3 to 4. Sending additional reports incurred a small cost of $6. What happened was that the mean number of score reports sent increased from almost exactly 3 to almost exactly 4. The effect was the same across low-income and high-income households.

Why is this strange? Well, it suggests that the students didn’t weigh the costs of sending an additional score report against the potential benefits, they simply went with the default option. Unthinking acceptance of default options seems to be pervasive in human societies, and in some cases it may have huge consequences. The students from low-income households in the example above were foregoing, on average, an additional $10,200 of lifetime earnings by not sending an additional $6 score report.

Automatic acceptance of default options is only one of many cognitive biases that people are subject to. Others include anchoring (an excessive focus on a single piece of evidence, usually the first one presented, when making a decision) and confirmation bias (the tendency to search for, interpret and focus on information in a way as to confirm your preconceived ideas).

These biases, recurring systematically and pervasively, are not in accordance with the underlying assumption of rational, utility-maximizing agents of economic models. 

 do what they would really want to do. They fall in the traps of automatic thinking and pre-defined mental models.

This implies that a heavy usage of economic models with rational agents can lead to a situation in which we ignore 

incredible opportunities to improve people’s lives through interventions that recognize their cognitive biases.

 What’s more, this is particularly relevant for development policy, as 

poor countries lack many of the institutions that make good decisions default options in the West

Figure 1: Good luck maximizing utility, baby.

The World Development Report 2015 draws heavily on the work of behavioural economists Daniel Kahneman and Amos Tversky, and for an overview of their research I would really recommend 

Three principles of human decision-making

In the World Development Report 2015, the World Bank sets up a framework where human decision-making is characterized by three principles.

 Lots of decisions we just make automatically, without much effort or consideration. Accepting the default option is one example of automatic thinking. Hence, 

minor changes to the decision-making environment can have disproportionate effects on outcomes and aggregate well-being.

 Such changes may relate to the timing of the decision or the design of the documents relevant for the decision.

One example comes from Mexico City, where people from low-income households were invited to pick the best $800, one-year loan from a randomized list of loan products representative of the local market. A mere 39% could identify the lowest-cost product from the brochures distributed by the banks themselves. However, 68% could do so with the help of a consumer-friendly leaflet designed by the Consumer Financial Credit Bureau. Making it easier for people to select what they want improves aggregate well-being.

Another example comes from India, where a study by Mani et. Al. (2013)

 showed how financial distress can deplete mental resources needed for important decisions. In the part of India studied, 99% of sugar cane farmers were indebted just before harvest, as opposed to 13% just after the harvest when farmers had received most of their income for the season. The financial distress had a considerable impact on farmers’ mental resources. In a series of cognitive tests, farmers performed consistently worse before harvest relative to after harvest, controlling for other factors such as sleep, work hours, nutrition etc. The mental depletion corresponded, on average, to the lack of a full night’s sleep.

With this in mind, it is perhaps less surprising that another study (Duflo, Kremer & Robinson, 2011)

 found that farmers on average make significantly higher-return investments in fertilizer straight after harvest relative to later in the season. Policy makers should therefore take real care in the timing of important decisions for the poor. Information about better seeds and crops should be distributed 

 harvest, not before, and farmers should be able to decide on theirs children’s schooling 

 Humans are social animals and have innate preferences for cooperation and altruism. We are strongly affected by the social norms in our communities. This is why prevalent corruption can largely be considered a social phenomenon – if you think everyone else will accept a bribe in your position, there is little stopping you from doing so yourself. Opportunities to change social norms exist at large.

An illustrative example of this is included in 

 by Abhijit V. Banerjee and Esther Duflo. Here we are told of school funds in Uganda, and that only 13% of the intended funds ever reached the right schools in the late 90s. After this had been publicized, there was an uproar, and the Ministry of Finance started providing the main national newspapers with statistics on how much money had been sent to local schools. The hypothesis was that the money got stuck in the pockets of local officials. 5 years after, more than 80% of the school funds reached their intended destinations.

 We use a variety of mental models when we think, passed down to us by history and culture. They are not necessarily social norms in the sense that they apply pressure on us to act in a specific way, but they are rather ways of thinking that are easily accessible. Thinking that people are rational is in some sense a mental model, particularly common amongst economists.

An example of how changes to institutions can help change mental models comes from the West Bengal in India. Here, affirmative action led to some regions having women leaders for the first time ever. Only seven years after the leaders had been elected, aspirations for teenage women were much higher. And perhaps more importantly, parents’ aspirations for their teenage daughters were higher and men’s bias in evaluating women in leadership positions was reduced (Beaman et Al, 2012)

Low-cost interventions that change behavior systematically look really promising from a development perspective. Particularly since many of the results in the World Development Report and those mentioned throughout this text have been asserted using robust statistical techniques, primarily randomized control trials. 

Improving decision-making environments and making good choices default options can and should improve well-being in the future. Finding such opportunities should be a clear focus for development professionals.

As a last note, we should always be aware of our own mental models and cognitive biases when thinking about development and policy interventions. And we should make sure that personal liberty is not unjustly compromised in the process of development. 

, by recognizing cognitive biases, shouldn’t be considered an infringement on personal liberty. In the words of John Stuart Mill:

[It] is a proper office of public authority to guard against accidents. If either a public officer or anyone else saw a person attempting to cross a bridge which has been ascertained to be unsafe, and there were no time to warn him of his danger, they might seize him and turn him back, without any real infringement of his liberty; for liberty consists in doing what one desires, and he does not desire to fall into the river. (Mill, 1859)

James Snowden

We look at the evidence regarding the economic benefits of malarial eradication

The Economic Benefits of Malaria Eradication

Estimates of the cost-effectiveness of malarial prevention have tended to focus on the number of deaths which can be averted. 

 currently estimates that it costs $2,838 to avert one death from malaria.

There may however be supplementary reasons to favour these interventions. In particular, improving the health of the population has important knock-on effects on economic productivity. This post gives an overview of the evidence regarding the extent to which fighting malaria can lead to economic growth and the various mechanisms by which this may occur.

Assessing the aggregate economic system-wide effects of health interventions is a difficult process and as a result there remains considerable uncertainty about the overall economic impact of malaria reduction. Nevertheless, we believe that, on balance, 

it seems likely that reducing malaria prevalence may have a substantial positive impact on long term productivity through a mechanism analogous to that of mass deworming.

Developmental, educational and cognitive effects: Getting malaria as a child substantially affects lifetime income

Recently, there has been increased attention on the long term productivity impact of having malaria early in life. This is similar to the case for 

 and potentially hugely important. There are a number of plausible mechanisms by which getting malaria early in life could have a long term impact on future earnings:

Malaria exposure impacts cognitive performance directly

Malaria in pregnant women produces anemia which is associated with worse cognitive development

Disruption to education caused by malaria may have a long term impact on future earnings

Catastrophic health expenditures may limit resources which can be invested in human capital by the family

The long timescales involved and the many confounding factors makes the extent of this impact difficult to evaluate.

One important study by Bleakley (2010) uses a difference-in-differences method to compare the average yearly income of cohorts born shortly before and after malaria eradication campaigns in Latin America and the USA. It found that cohorts born after the anti-malaria campaign in infected areas earned approximately 25% more than the previous generation, after controlling for the differences between cohorts in malaria-free areas. The equivalent number for the USA was 12%.

These are very substantial results (the increases apply to the whole population rather than just those infected with malaria) but have limited external validity because the data examined were from Latin America and the US (where the predominant strain of malaria differs substantially in its effects to the predominant strain of malaria in Sub-Saharan Africa

), and the 1920s in the US and 1950s in Latin America (when the economic ecosystem was very different).

An additional study by Barofsky (2011) in Uganda found that malaria eradication produced 0.3 more years of schooling in the intervention area compared to the rest of Uganda, which corresponds to an annual income gain of between 3% and 11% depending on the conversion rate used

. While these effects are less substantial than the Bleakley paper they are important for two reasons. First, they have greater external validity in Sub Saharan Africa. Second, because the prevalent strain of malaria in Uganda has a higher mortality rate, the results include the countervailing selection effect of removing lower lifetime income people from the population. Barofsky found that the long term impact of malarial prevention on productivity is substantial, even net of this selection effect. 

Barofsky’s paper lends credence to the belief that malaria eradication could have long term productivity effects

 although we would welcome further research in this area.

Costs to individuals and health care system: treating malaria is very expensive, preventing malaria is very cheap

The most direct economic benefit to reduced malaria prevalence is the associated reduction in household health expenditures. Getting malaria is not only deadly but it’s also very expensive. This cost is relatively easy to measure. Household expenditure on malaria treatment in Malawi ranges from about 7% of household income for the average household to 32% of household income for the poorest groups.

 In countries with undeveloped healthcare systems, where out of pocket health expenditures are common, 

malaria can lead to catastrophic health expenditures and financial impoverishment

Where healthcare costs are subsidised, the direct costs of treating malaria fall on the government. The 2015 WHO World Malaria report estimates that, since 2000, 263 million cases of malaria which would have been treated in the public sector have been averted. This is equivalent to a $900m saving for government budgets, of which $610m is attributable to distribution of ITNs/LLINs.

 The 2011 version of the same report noted that “in Rwanda it has been estimated that while it would cost US$ 265 million to sustain the malaria control programme over the next five years, the public health system could avert about US$ 267 million in the costs of diagnosing and treating malaria; and households could avert about US$ 547 million in direct and indirect costs, equivalent to about 7% of household income.”

Figure 1: Estimated number of fever cases seen at public health facilities in Africa in 2015 according to different levels of ITN

for a given number of cases prevented/treated, preventative strategies have an advantage over treatment because they avoid catastrophic health expenditures and reduce the burden on the public health system (see Figure 1).

Labour productivity benefits: are people less productive due to malaria?

The economic cost of malaria is not limited to the direct costs of treatment. Working when you are seriously ill is very unpleasant. As a result, the sick take time off work (or at least are less productive) and those with sick children take time off to care for them.

Time lost per episode varies significantly across settings due to the variability of different types of malaria strains, type of economic activity and access to treatment amongst other factors. The average time lost per adult varies between 1 and 5 days.

 One recent RCT found that a group of farmers who were assigned bednets increased their harvest value by 15%

 have questioned the validity of this result due to baseline imbalances between the treatment and control groups). However, 

there remains considerable debate as to how much malaria impacts short term productivity

. For example, in Malawi, only 52% of adults reported that their illness affected their work.

 Moreover, a larger RCT which looked at 81,597 smallholder contract farmers in 1,507 clusters found no significant impact on cotton production from bednet distribution.

 One possible explanation for this result is that when people are ill they deprioritise less lucrative activities such as basket weaving rather than cotton farming. 

It seems likely that people who have malaria are less productive in the short term but the scale of this impact is highly uncertain.

Evidence on the macroeconomic effects of malarial eradication

Macroeconomic impact of health improvements is particularly difficult to measure. Early attempts used simple country cross-sectional regressions of health on GDP per capita

 but these seem doomed to failure because of omitted variable bias and the causal circularity of health and income (improved health may lead to increased income but increased income also leads to improved health). As a result, much of the literature prefers to extrapolate overall macroeconomic impact from microeconomic productivity gains.

More promising is the use of time-series data and simulations to evaluate the impact of a health shock on income per capita. Ashraf et al. simulated the impact of the immediate eradication of two diseases, malaria and tuberculosis.

 They found that, while the eradication of tuberculosis may lead to immediate increases in income per capita, the eradication of malaria may lead to short term reductions in income per capita. The difference is explained by the different demographic effects of the two diseases. While tuberculosis primarily affects workers in their prime, malaria disproportionately kills children under the age of 5. Malarial eradication therefore increases the dependency ratio of children to workers in the short term, leading to a fall in income per capita. In the long term, declining endogenous fertility rates, combined with the productivity improvements discussed above mean income per capita rises again (see Figure 2).

Figure 2: Simulated impact of elimination of malaria and tuberculosis on income per capita (from Ashraf et al.)

These results have been thoughtfully critiqued by Bleakley.

 While Bleakley agrees that demographic effects mean the impact of malaria eradication is likely to be realised in the long term rather than the short term, he notes, among other things, that the mechanisms through which malaria impacts productivity may not be limited to cases of acute fever (which is assumed by Ashraf et al.) but rather may have more insidious effects on long term productivity. Bleakley concludes that Ashraf’s estimates may be an order of magnitude too low. The debate seems to hinge on the scale of these long term productivity effects, which are discussed above.

d'Arcy Lunn

Why I not only give what I can but also campaign for Giving What We Can

I love Australian Rules football and cricket, I always have and I still do. But until the age of 22, that was about all I had a passion for.

Then I decided to follow up on a then new passion of mine: climbing mountains. So I chose a small country with big mountains to go to named Kyrgyzstan (also the world’s most difficult country to spell). I was instantly mesmerised by the 7000m mountains that filled my horizons and the beauty of the culture and people. While I was getting my Kyrgyz visa in London, one of the consulate staff said they had a friend who I should visit while there, a professor at a university in the east of the country. I was a newly graduated teacher myself so I thought this would be a good idea to go and visit and maybe volunteer for a week before I took off to the mountains.

That week has more or less lasted for the past 15 years and now in over 80 countries.

I completely fell in love with volunteering, cultural immersion and working with people to address issues of equality and justice. In my first month of volunteering in beautiful Karakol, in eastern Kyrgyzstan, I worked with an incredible group of women my own age and learnt more from them that I had learnt from anyone else in my life to that point. While I got a degree from a university in Australia, it was really the university in Kyrgyzstan that gave me an education in life.

A few months after my volunteering in Kyrgyzstan and then Mongolia I did some paid teaching in South Korea. There was a moment in South Korea that it hit me:. Why…? Why me…? Why was the world so unequal? That moment was when the paper money of Korean Won hit my hand after my first week of teaching. 

I had just been paid more money per hour than my friends and colleagues in Kyrgyzstan earned in a month, but here’s the thing - I didn’t worker harder than my friends, I wasn’t smarter, I didn’t work longer hours. The only difference between us was where we were born. Having been born in Australia, I had access and opportunity to do what I wanted in the world.

When I felt the world shift as the cold facts of reality and injustice dawned on me, it struck me that I had to do more to find out answers and work on solutions. My journey since Kyrgyzstan 15 years ago has taken me into two definite strands of life:

Listening, learning and trying to be of service to communities in developing countries

Advocating, campaigning, awareness-raising and educating others in developed countries.

What Giving What We Can has added to my life is not only a framework to have my financial justice house in order by giving at least 10% of any money I earn (since I don’t earn a salary from any one organisation and mostly still volunteer). 

It has also given me an opportunity to advocate on why overseas aid is important, how effective it is, and why I care and contribute not only in donations but also in time, effort, energy and passion towards making sure we all have access and opportunity no matter where we are born.

In September this year I visited Kyrgyzstan once again for the first time in 15 years. I no longer saw the same level of extreme poverty. It seemed people no longer had to make terrible choices between less food per day or to buy the medicines they needed. That is the basic kind of choice and opportunity I hope to see for everyone, everywhere and forever.

Giving What We Can is not only about getting our finances in order. It is also about engaging us with great people doing great things. So be sure to not just give your money but also lend your voice as to why giving is important to you. I strongly encourage everyone to share with others - especially your local MP - why you care about making a difference in the world and be a part of the solution for a better world for everyone, everywhere and forever.

Your voice is just as important as your donation. It is up to us to create a community and culture of being generous to others, so that our community, business and political leaders can also follow our lead or make good decisions on our behalf. We are lucky to be able to be part of the movement that can end extreme poverty, reduce inequality and protect the planet. Make sure others know about it and the positive impact Giving What We Can is having on the global community, contributing to opportunity for all.

Juliet Bowater

Could parasites be making vaccinations less effective in developing countries?

According to a recent study, they could be.

An NIH-funded paper published earlier this year 

if mothers-to-be had malaria, schistosomiasis, or hookworm infections during their pregnancy, their babies were less well-protected by some vaccines.

 This may help to explain why some vaccines are less effective in areas of developing nations 

In the study, babies were given a vaccination which protects against five diseases – diphtheria, tetanus, pertussis, Hib (a cause of meningitis and septicaemia) and hepatitis B – and the level of protection produced in response to the Hib, hepatitis B, diphtheria and tetanus components were then measured. Parasite infections affected how much protection was given by the Hib and diphtheria components of the vaccine.

For the Hib component, babies from mothers who had been infected with malaria, filariasis or hook-worm gained less protection from the vaccine than those whose mothers did not have those infections. This suggests that the worm infection in the mother reduced the effect of the vaccines in the babies.

The picture gets more complicated when the mother has more than one infection. It has been known for some time that parasites use high level evasion tactics to avoid the immune system, and that this may stop vaccines from working so well

. As an example, BCG vaccinations provide less protection against tuberculosis in people who have a worm burden than those who don’t 

.In their attempts to avoid elimination by the immune system, parasites end up triggering off a range of immunological functions, sometimes with counter-intuitive effects.

For instance, babies whose mothers had malaria had less protection from the Hib vaccine than those whose mothers were malaria-free. Babies whose mothers had worm infection also had less protection. But babies whose mothers had BOTH malaria and worm infection had a better response to the vaccine than those whose mothers only had malaria. So, in this case, the combination of worms and malaria works on the side of the vaccine, making the response less bad.

To make it even more complicated, there is a different response to the part of the vaccine that protects against diphtheria. Here, malaria infection in the mother had little effect, and worm infection in the mother also had little effect, but babies whose mothers suffered from both malaria and worms had a worse response to the vaccine.

So what’s going on here? Why the different response?

Parasites’ tactics include complex communications trickery, signalling the immune system to err towards tolerance rather than aggression. The signals caused by the parasites in pregnant mothers may end up pushing their babies’ immune systems into having a more tolerant and less aggressive response as well. Unfortunately, the processes which are involved in producing an aggressive immune response are important in gaining protection from many vaccines 

The constant balancing act between tolerance and aggression is in part controlled by immune players called Th1 and Th2 cells. Each produces a cocktail of self-interested chemicals to keep its philosophy on top. Once a Th1 response starts, it tends to keep going at the expense of the Th2 response, and vice-versa 

. Any upset to the normal Th1:Th2 balance is likely to make the vaccine response less effective.

Parasites like intestinal worms push for a Th2 response 

, which is less aggressive and more tolerant. But the more aggressive Th1 response is normally what’s required for vaccines to give good protection against diseases.

Malaria is well-known for suppressing the immune system and paralysing vital components to suit its own ends, as well as being hugely damaging to pregnancies, increasing the risk of premature birth, miscarriage, low birth weight and infant mortality 

, so treatment during pregnancy is important 

Blog

Out of the box and into this world: behavioural economics and international development

The Economic Benefits of Malaria Eradication

Why I not only give what I can but also campaign for Giving What We Can

Could parasites be making vaccinations less effective in developing countries?

Did iodized salt raise the IQ of 50 million Americans by 15 points?

Why I am taking the pledge this New Year's

Why you should be public about your good deeds

Six ways to double your impact this New Year's

Bednets Have Prevented 450 Million Cases of Malaria

Giving What We Can’s Recommendations for Giving Season 2015