Zam-Rock

Just, wow.

New York City does away with its Conditional Cash Transfer Program

So much for that:

"An unusual and much-heralded program that gave poor families cash to encourage good behavior and self-sufficiency has so far had only modest effects on their lives and economic situation, according to an analysis the Bloomberg administration released on Tuesday.

The three-year-old pilot project, the first of its kind in the country, gave parents payments for things like going to the dentist ($100) or holding down a full-time job ($150 per month). Children were rewarded for attending school regularly ($25 to $50 per month) or passing a high school Regents exam ($600).

But city officials said Tuesday that there were no specific plans at this time to go forward with a publicly financed version of the program... elementary and middle school students who participated made no educational or attendance gains. Neither did high school students who performed below basic proficiency standards before high school."

These programs have been very successful in several developing countries, particularly Mexico's Progresa and Oportunidades programs. Somehow, it seems kind of obvious to me that a program like this would work well in a developing country but not in New York City. Yet, I can't really say why.

Quote of the day

"If people hate what they don’t understand, then that would explain my attitude towards abstract art. I see abstract art and I want to stab it in the neck. And then I begin to hate myself because my anger itself has taken a cue from the painting and expressed itself in an abstract form."

From one of my favorite blogs and certainly the one with my favorite name: "I Dance the Internet," by a Ugandan journalist named Ernest Bazanye.

Pricing and behavioral economics

I'm currently making my way through Easterly and Cohen's edited volume What Works in Development: Thinking Big and Thinking Small; all the chapters I've read have been excellent so far. One that struck me was Michael Kremer and Alaka Holla's survey of the literature on the impact of different approaches to pricing in health and education projects (ungated version here). They note that a remarkably consistent finding is that when you go from a zero to non-zero cost or reward, there is a large difference in uptake. So, for example, people are much less likely to participate in an education program or use an anti-malarial impregnated bednet if you charge them a small fee rather than giving it to them for free. That's not surprising, of course, but what is surprising is that the size of the fee tends to be much less important than whether or not there is a fee at all. This isn't what economic theory would predict- people should place a certain value on something like an anti-malarial bednet, and be willing to pay for it as long as it's offered to them at a price that's less than that. There should not be very many people who actually value it enough to use it if you give it to them, but not enough to pay even a tiny price for it. Yet, it turns out there are.

This is an example of behavioral economics, i.e., loooking at how peoples' psychological biases lead them to deviate from the standard assumptions of economic theory. Usually, research along these lines picks a particular deviation- often one that has been identified empirically, such as that people are impatient about something- and offers an ad hoc theory based on incorporating this into a model of utility maximization. This is certainly a worthwhile approach that has led to some very interesting work.

One of my half-formed, pet ideas is that it would be great to approach this from the other way around, from the standpoint of evolutionary psychology. One could build a broader theoretical framework based on evolutionary psychology that could yield more systematic predictions that could be tested empirically. This would give us a complementary and potentially useful way to look at these things in addition to narrower adaptations of economic theory in stemming from observed empirical regularities.

Bracketology

In general, I dislike the idea of making predictions about the future. After all, the future is uncertain, and if you are ever asked to make any kind of prediction you should always just pick the most likely outcome. Usually, making predictions in this sense is not a very interesting process, since people often agree on what the most likely outcome is. Who is most likely to win the World Series next year? Anyone who is knowledgable about baseball would say the Yankees. However, people like to make predictions that other teams will win the World Series- some people might pick, say, the Mets. Why? Usually not because they actually believe the Mets are more likely to win than the Yankees, but because they want to make the statement that they think other people are underrating the Mets. What they really mean by picking the Mets is something like, "most people think the Mets have a 2% chance of winning the World Series, but I think it's more like 10%." Which is a substantive and potentially interesting thing to say, so why not just say that? Because even if the Mets do win the World Series, it's not like it was inevitable, so it really doesn't even validate their opinion.

Which brings me to the topic of filling out NCAA tournament brackets. Is filling out your bracket in the office pool a similarly meaningless exercise in which you should just pick all the higher seeds to win? Actually, no- not in the same way. The reason is, that you're not trying to maximize your chance of picking the correct bracket, you're trying to maximize your chances of beating everyone else in your pool. And that can lead to very different reasoning.

For the sake of argument, say you're in a pool with 1,000,000 other people, and everyone agrees that Kansas is the favorite and has a 15% chance of winning, while Kentucky is the second favorite and has a 14% chance of winning. What if the other 999,999 people in the pool pick Kansas to go all the way? Even if you agree that Kansas is the favorite, it's not going to make sense to pick Kansas and then hope that you'll beat everyone else and be one in a million on the strength of your other picks. Rather, you should pick Kentucky, and if they make good on that 14% chance you'll be in good shape to win your pool.

What I'm curious about is, I can't think of any other area in life where this kind of reasoning applies. When else is it the case that maximizing the expected value of the decisionmaker's outcome would lead to one decision, but maximizing the probability that the value of the decisionmaker's outcome exceeds some finite group of competitors leads to a different decision, and the latter is in fact what really is the decisionmaker's goal?

RCTs and transparency

A hot topic in development economics right now is the use of randomized control trials in impact evaluation. The basic idea is to assess the impact of development projects by using a methodology similar to clinical trials of pharmaceutical drugs. So, for instance, say your project involves building 1,000 schools. The process would be to choose 2,000 suitable locations for the schools, and then randomly divide them into treatment and control groups, so that you can compare the outcomes in the locations that got schools with those that did not.

While pretty much all development economists agree that this is a good way to do impact evaluation, opinions vary dramatically on just how good it is- some go so far as to argue that RCTs are the only way we really know anything about development, while others see RCTs as very limited and only appropriate in certain cases. I won't rehash the whole debate over the pros and cons, but a good overview is here.

One argument that I haven't heard raised before in favor of RCTs relates to transparency. When I used to work in development, I went to a presentation of some non-RCT research results at the World Bank with a relatively high-up practitioner colleague who was bright, but not quantitatively minded. The discussion at the seminar inevitably revolved around the technical details, with some people questioning the vailidity of the presenter's use of instrumental variables and results, the presenter defending them, etc.

After the seminar, my colleague explained that what we had seen was the reason why he didn't pay much attention to development economics research. He understood that the results can depend on econometric assumptions and choice of techniques in important ways- but without being able to even begin to understand how, he felt it was safer to just ignore it than to actually let it influence any decisions he made.

I think he was exactly right, and a major advantage of RCTs is that they avoid this problem. My colleague, and others like him, are in no position to have an opinion about, say, the validity of the instruments used in a particularly study or the debate over how IV results should be interpreted, for example. You might argue that this means he should just listen to an economist about this stuff. But he knows that different economists are going to tell him different things, and without some basis for wrapping his head around the underlying issues, it's a pretty risky move to just blindly follow their advice. By contrast, my colleague could certainly grasp a typical RCT analysis- how to interpret the results, how to evaluate external validity concerns, etc.

Obviously, research results that are easy for policymakers and donors to understand are going to have more influence over policy than those that aren't. But perhaps less obviously, the spread of RCTs could actually expand the influence of quantitative analysis in a more indirect way. People like my colleague don't pay much attention to development economics research, and with good reason. But if more of the research used a comprehensible methodology like RCTs, I think people like my colleague might start paying a lot more attention.

Farm aid from space

Another very good piece of development micreconomics journalism from Jina Moore, this one on livestock insurance in rural Kenya. For many poor people in developing countries, the potential benefits of insurance against the risks they face are enormous. As the recent book Portfolios of the Poor illustrates, people with very low incomes also tend to have very uncertain incomes as well- think of casual laborers who cannot rely on steady work, small-scale farmers who are vulnerable to uncertain weather conditions, or informal business owners who have good days and bad days. As a result, one of the biggest concerns these people have is managing their irregular cash flows, so that when things are going badly they can still afford to survive. In fact, it turns out that even very poor people are often willing to pay substantially for mechanisms that help them do this.

And not only is not having to worry about starving its own reward, but being insured can also help people get out of poverty by enabling them to take risks. A person who is insured can plant a crop that has a higher yield but fails once in a while, whereas a person who is not insured might be stuck planting a lower-yielding but more reliable crop (this has been observed in the tradeoff between planting millet and sorghum in West Africa, for instance). If you can cope with the ups and downs, you can own your own rickshaw and keep the profits, if not you might be better off working for a lower wage for someone who owns a rickshaw company. And so on.

Despite the huge potential, insurance projects has a bad rep among people who do development work- they're perceived as not working very well. This is primarily because, as Jina points out, in order to have insurance against losses someone needs to be there to verify the loss:

"For the cattle, camel, and goat herders in Marsabit, a dry part of Kenya that shares a border with Ethiopia, animals are assets. Their sale can bring the income a family needs to survive, and a big herd, like a big house, is a store of wealth that can be useful collateral for credit, which analysts often say is key to pulling people out of poverty. At minimum, losing a cow is a devastating financial blow.

That's the kind of risk that insurance can defray, but insurance agents aren't going to travel to Marsabit to verify cattle deaths."

Jina reports on clever approach to getting around this problem by offering people insurance indexed to rainfall rather than insurance against actual cattle deaths or crop failures:

"Enter weather-indexed insurance, which changes the way the damage is verified for everything from cattle to crops.

"The idea with an index is, instead of providing a payout based on crop loss, you provide a payout based on something you can measure independently," says Dan Osgood, associate research scientist at the International Research Institute for Climate and Society at Columbia University."

A key to these kinds of things from a project design point of view is that what might make sense in theory doesn't necessarily make sense to a livestock owner in rural Kenya- I looked at one case in another context where a logically designed insurance product failed because the farmers didn't understand what they were being offered. This involves not only education and outreach, but flexbility to design the products that make sense to the people who are getting them, rather than just making actuarial sense on paper.

Depression is good for you

Last week's New York Times magazine had an interesting evolutionary psychology article about the debate over whether propensity for depression might in fact be an adaptive trait. If you've never thought about evolutionary psychology before, it's a good introduction. The premise of the article is that a large proportion of the population appears to be prone to depression- yet, depression would seem to interfere with our ability to survive and reproduce, so why did we evolve this way? The main argument is that depression may serve an evolutionary purpose as a mechanism to get us to think deeply about our problems and learn from our mistakes. An important feature of depression is "rumination-" obsessing over negative thoughts to the exclusion of anything else, and maybe that process helps depressed people make better decisions in the future.

I was a bit unconvinced by that- as the article points out elsewhere, there's more to depression than just rumination, much of which seems obviously maladaptive. More intriguing I thought was the argument that the evolutionary explanation for depression might have to do with avoiding conflict over social status. The idea being, depression protects people with low status from themselves by making them sit around and mope all day, intstead of trying to gain status by opposing high-status people and potentially getting killed in the process.

Related to that, I wonder if the evolutionary function of depression might be to regulate our perceptions of our own self-worth according to circumstances. Most people, most of the time, seem to have inflated views of their own capabilities. Whereas, depressed people are the opposite. From an evolutionary standpoint, holding an inflated view of one's own capabilities might be useful in that it helps with signalling to potential mates. The more you believe in yourself, the more you can convince other people how great you are and the more you can reproduce. But, there's a countervailing cost in terms of survival risk. Overestimating your own ability can lead you into a miscalculation that gets you killed- say, by believing that you can successfully challenge someone who is in fact much more capable than you are.

So which wins out? Is having an inflated view of your own capabilities adaptive (i.e., are people with inflated views of themselves more likely to survive and reproduce than people with more accurate views) or not? Maybe the answer is, "sometimes." Under normal circumstances, the evolutionary pros of being overconfident outweigh the cons. But if things aren't going your way- for example, if you end up with low status, or your environment places you under constant threat- then the dangers of miscalculating outweigh the reproductive benefits. Depression is how our brains tell us that it's time to start being more realistic about coping with potential dangers, and to stop trying to puff ourselves up to attract babes.

More broadly, it would seem to make a lot of sense if people have the capability of assuming either high social status roles or low social status roles as circumstances warrant, rather than social status being completely determined by inherent traits. The overconfidence/depression combination might be a way of maintaining that flexibility- depression makes someone who would ordinarily seek high status to accepts a low status role.

EconTalk

Speaking of which, if you haven't heard it the EconTalk podcast is awesome. It has literally revolutionized my life as a commuter. Each episode is an hour long conversation between George Mason University professor Russ Roberts and a guest, often someone who has recently written a book. The guests are often economists, but also include a wide range of people talking about lots of different things- psychologists talking about education, legal scholars, etc. Development is a frequent topic, and Roberts gets some pretty big names on the show- people like William Easterly, Paul Collier, and Michael Spence, as well as lesser known people and sometimes even practioners. Roberts is a smart and thoughtful guy who asks good questions, and his genial manner has earned him the nickname "Uncle Russ" (at least to me). He's been doing this for years, so the archives are huge. In addition to the development stuff, I highly recommend the one with Robin Hanson on signalling if you want something that will blow your mind.

Marglin's The Dismal Science: How Thinking Like an Economist Undermines Community

The premise of The Dismal Science: How Thinking Like an Economist Undermines Community sounds very intriguing. Stephen Marglin is a guy who got tenure in the economics department at Harvard in the 1960s and promptly outed himself as a radical leftist who has devoted the majority of his career to criticizing mainstream economics. The central thesis of the book is that under the guise of scientific objectivity, the discipline of economics priveleges a peculiar view of human nature. Marglin contends that economics promotes the primacy of the needs of the individual over those of the community, and that this perspective is not rooted in science as economists claim but is in fact the artifact of a particular strain of philosophical thought that has emerged to legitimize the inequalities inherent in capitalism.

This was a book I had been really looking forward to- I enjoyed Marglin's appearance on the excellent EconTalk podcast, and of course the central idea has a lot of relevance for development. Like Marglin, I too am skeptical about a lot of things that economists are up to (though my criticism of the discipline would have less to do with some fundamental flaw in the tools of mainstream economcis and more to do with how those tools tend to be applied). Unfortunately, though, I found The Dismal Science disappointing- ultimately, there was very little here that I had any difficulty disagreeing with. The book spends far too little time trying to convice the reader of its central thesis, and far too much time on an unfocused, scattershot attack against a straw man version of "economics" that I don't recognize much at all. For example, Marglin keeps arguing that economics denies the community and allows only the individual or the state as the relevant unit of analysis. Yet, some of my own work focuses on the effects of HIV/AIDS mortality on community cooperation, and though other economists may take issue with various aspects of it one criticism I have never heard is that the community isn't a relevant focus. I would have enjoyed a thorough and balanced exploration of the idea that economics undermines community, but this book felt a lot more like a broadside.

Post-coup etiquette

Via Jina Moore, a Powerpoint presentation by an international consultant to the Guinean military on how to not violate human rights here. Too funny.

I thought the use of exclamation points was very effective- personally, whenever I see a sentence without an exclamation point at the end I always think, "If they really mean it, why no exclamation point?" I do have one suggestion though- I think the presentation would have been improved by taking a "Goofus and Gallant" kind of approach. For example,

• Nice Nelson's army always respects human rights!
• Bad Bashir's army thinks it's OK to ignore the Geneva Convention if no one is looking!

• Nice Nelson is having a fun time at the big conference- all the other leaders want to see his international human rights award!
• Bad Bashir has to stay home by himself and watch TV- he didn't even get invited to the big conference!