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.
Forthcoming in The Political Economy of Development Economics: A Historical Perspective. Duke University Press.
The theory of the individual decision-maker in economics has come almost full circle from the time of Adam Smith. In the 18th and 19th centuries, his character was shaped by institutions. In neoclassical economics, he was the rational actor with fixed preferences. In 21st century behavioral economics, he is the quasi-rational, enculturated actor.
Behavioral economics clarifies the domain of choice. An individual makes choices based on his interpretations of a situation and on what is salient to him. His interpretations are shaped by the mental models that the choice situation activates (or that are chronically activated). In general, the individual does not choose the context nor his full repertoire of mental models. This means that individual choice is more limited than traditional economics recognizes. Behavioral economics is about the design of choice contexts and policies to help individuals pursue their goals and to expand the ways in which they see and interpret the world.
The reductionist tendency in behavioral development economics to squeeze socio-psychological influences into merely two ideas—shared preferences and rules of thumb—understates the richness of the influences on behavior. Clear evidence suggests that socio-psychological factors affect how we see the world and ourselves, and that this shapes our choices.
Behavioral economics in the 20th century revealed universal cognitive biases with large economic consequences. In the 21st century, it revealed that the social patterns to which individuals are exposed shape who they are— how they perceive and interpret the world, the set of economic opportunities they focus on, and the kinds of decisions they chronically make. This talk shows that, through behavioral means, interventions can shift societies to better development paths.
The Report, co-led by Karla Hoff, shows that much behavior is based on "thinking fast"; on social networks, social identities, and social norms; and on information processing that uses stereotypes, scripts, and other taken-for-granted social constructs. This more realistic view of how people think leads to new tools and targets to promote economic development.
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