Karla Hoff is a Lead Economist in the World Bank's Development Research Group and Codirector of the World Development Report 2015. Much of her work focuses on using the tools of economics to study social interactions. She has published papers in the American Economic Review that explain how good people can form bad neighborhoods, how productivity is sensitive to social setting, and how historical legacies influence the difficulty of establishing a rule of law. She won a Citation of Excellence for one of the top 50 papers from Emerald Management Review for her 2009 Economic Journal paper with Joe Stiglitz, “Exiting a Lawless State.” She was a member of the MacArthur Research Network on Inequality and Economic Performance, 1996-2006. She co-edited two books—The Economics of Rural Organization and Poverty Traps. Ongoing work evaluates a women’s empowerment project and a political theater program in India. Her work spans conceptual analysis and grassroots fieldwork. She has a BA in French from Wellesley College and a PhD in economics from Princeton. She taught English in the Peace Corps in the Ivory Coast.
A longer version of this paper will appear as a World Bank Policy Research Working Paper in August 2017.
This paper describes the ongoing ‘behavioral’ revolution in economics and its application to development economics. A first wave of the revolution identified universal biases in thinking arising from the mechanics of cognition. It generated a new policy-making paradigm focused on ‘nudges.’ A second wave recognizes that social patterns influence preferences and cognition via the cultural mental models that individuals use to perceive, interpret, and respond to situations. Acknowledgement of this new factor both complicates and simplifies economists’ conception of the development process: it complicates it because subjective processing of information can give the economy multiple equilibria; it simplifies it because sometimes ‘all’ that is needed to change behavior is experience or exposure to new social patterns.
The second wave of behavioral economics imports concepts and theories from other social sciences, but a tension exists: despite growing acceptance that social and cultural factors matter for decision-making, economists are generally inclined to squeeze these effects into the conceptual and linguistic parameters of rational choice theory. We argue that this may limit the potential of the field. We recommend instead recognizing an ‘enculturated actor’ whose conceptual schemas, identities, and narratives are all possible targets for welfare-increasing policy. The insight that cultural mental models can impede institution-building, and that short-run interventions that change mental models can lead to long-term change, makes behavioral development economics a very exciting frontier of economics.
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