Policies to eradicate poverty are created under the assumption that people act based on reasonable decisions, that they carefully weigh their options, analyzing all available information before making a choice.
Under this assumption, policies to overcome poverty promote activities that are considered useful and discourage those that are not.
In recent decades, however, several studies have investigated and questioned people’s decision-making processes. These studies, which were previously used almost exclusively by advertising executives and marketing experts, have begun to influence public policymaking and development efforts.
Anna Fruttero, co-author of the new World Development Report 2015: Mind, Society and Behavior, and Renos Vakis, lead economist of the World Bank’s Development Research Group, explain how paying attention to how human beings think and how the environment influences their decisions can improve the design and implementation of development policies throughout the world.
Question: What are the main findings of the World Development Report 2015 for Latin America?
Answer: One key finding is that much more effective public policies can be designed if attention is paid to the way people make decisions. Human beings immediately resort to contextual information or previously acquired information. The way in which we act and think usually depends on what those around us do and think.
Previous experiences in the fields of advertising and psychology have confirmed these findings. It is nothing new to investigate how to influence people’s decision-making; the novel thing is to study how we can use these concepts to design development policies.
The new World Development Report 2015 is based on three principles:
1. Automatic thinking. Much of our thinking is automatic and is drawn from what comes to mind effortlessly. Most of the time, we use mental shortcuts.
2. Social thinking. Human beings are profoundly social. We like to cooperate, as long as others are doing their share.
3. Thinking based on mental models. What people perceive and how they interpret it depend on concepts and worldviews drawn from their societies and from shared histories.
Q: How do these discoveries influence the generation of policies to fight poverty in the region?
R: If we better understand how people think and behave, we can create or modify policies to obtain more effective results. In general, we seek to help people make the best decisions possible by eliminating most of the “noise” generated by different factors.
People living in poverty are constantly thinking what they will eat that day, how they can help a sick relative or how long they have to walk to fetch water. In that world of worries, there is little time to devote to being productive. Finding work or saving money to achieve some goal is much more difficult in that context.
Nevertheless, in the report, we discuss a case in Peru where a system of monthly text message reminders helped poor people achieve their savings goals.
Moreover, addressing challenges such as breaking the cycle of poverty from one generation to the next, increasing productivity or even taking action in response to climate change can be more effective if we manage the details of the specific moment in which an individual makes a decision or when the context affects that decision.
Q: What would be a good example of how people’s decision-making power has an impact on improving their quality of life?
A: The report cites several such findings. For example, during a water shortage in Bogota, Colombia in 1997, part of a tunnel that supplied water to the city collapsed. The first thing the municipal government did was to alert residents of the coming crisis, encouraging them to save water and to use it wisely. Nevertheless, the message had the opposite effect, increasing both consumption and hoarding.
After recognizing the problem, the government modified its communication strategy. The mayor appeared on television taking a shower with his wife and explaining why it was necessary to turn off the faucet when soaping up. He then suggested showering in pairs. In addition to the television commercial, he sent volunteers throughout the city to teach the most effective water saving techniques. Finally, consumption figures were published daily and those who cooperated or did not cooperate with the effort were publicly named.
The strategy was so successful that the decline in water consumption continued even after the tunnel was repaired. The TV commercial and the publishing the names of those who saved water were very powerful social incentives, strengthening cooperation of the entire community. This is a good example of the importance of considering social thinking (I do my part when everyone else cooperates) in an effort to obtain better-focused strategies and results.
Another important example is the experience in the United Kingdom during tax season. The main problem was that individuals paid their taxes late, generating higher costs for the government (because it had to issue new reminders, implement new collection procedures, etc.). To address this problem, the first reminder sent out contained the phrase “nine of every 10 Britons pay their taxes on time,” which reduced the number of defaulters.
Q: How can we apply the report’s conclusions in Peru?
A: Increasingly, developing countries are applying these techniques due to the keen interest in achieving objectives such as reducing poverty. Helping to close the gap separating intentions from actions is crucial here. Using these findings in applications associated with development requires a reiterative process of discovery and learning.
In Peru, for example, three groups were formed in a savings association. In the first group, each person saved without any intervention. In the second group, each of the savers received a text message reminding them to save. That group saved 6% more than the group with no intervention.
The third group received personalized messages. Besides reminding them to save, the message mentioned their personal savings goals. Messages would say something like “remember to save this month so you can meet your goal of 100 soles.” The people in this group saved 16% more than those in the first group.
When you connect the message that encourages savings with a personal goal, you strengthen it. This is similar to weight loss programs, which constantly remind you how many calories you have managed to eliminate and how many kilos you have lost. In both cases, these are mental reinforcements to encourage you to reach your goal.
The report also states that social incentives can be as powerful as economic ones. Social compensation, gifts, non-monetary prizes and recognition can lead individuals to change their behavior and achieve interesting results.
Q: What steps should be taken to incorporate these solutions in policies to eradicate poverty in Latin America?
A: In recent years, several governments have tried to incorporate these findings in their public policies. We should keep in mind that policies can be reassessed at any time. Current programs should be reviewed to determine when during the process behaviors occur that impede achieving the expected results.
Ecuador has a nutrition program where one of the objectives is for children to consume “nutritional drops.” Currently, we know that only half of the children consume the drops, but we do not know why.
This is when we begin our research. We need to look beyond the numbers to examine behavior and the factors influencing the decision whether to take the drops. It could be, for example, that the drops are the wrong color or that the package does not state the drops’ benefits, or that they have an unpleasant taste.
In these cases, the research should look at psychological factors in addition to economic ones, and especially factors that influence people when they are making a decision. As a development organization that regularly conducts evaluations, the World Bank offers the findings of the World Development Report to help governments create more effective policies to fight poverty.