Peru/World Bank: Taking human behavior into account can strengthen the effectiveness of public policies

February 10, 2015


From left to right: Francisco Galarza, professor at the Universidad Pacífico; Anna Fruttero, senior economist, World Development Report Team, World Bank; Alberto Rodriguez, World Bank director for Bolivia, Chile, Ecuador, Peru and Venezuela; Juan Pablo Silva, vice-minister of institutional management, Ministry of Education; Alonso Segura, minister of the Economy and Finance of Peru; Gustavo Yamada, dean of the School of Economics and Finance, Universidad del Pacífico; Renos Vakis, lead economist, Development Research Group, World Bank.

World Bank

Presentation of the World Development Report in the framework of the Road to Lima 2015 activities  

LIMA, Peru, February 10, 2015 – Development policies based on new lessons concerning the way people think and make decisions will help governments and civil society meet development targets more effectively. A new World Bank report discusses how deeper, more precise knowledge of human behavior can facilitate addressing the most complex development challenges, such as reducing poverty, increasing tax collection efficiency or reducing energy consumption. While interesting experiences with this approach already exist in Peru, more can be done to include it as an integral part of public policy design.

The World Development Report 2015: Mind, Society and Behavior examines the results of studies that demonstrate the role of psychological and social factors influencing development. This approach complements economic tools for more effective public policymaking.

The report concludes that people do not always adopt deliberate, independent decisions based on careful consideration of what is best for their personal interests. Rather, they tend to think quickly and rely on mental shortcuts and shared mental models. Acknowledging this reality can enable governments and other actors to design programs that facilitate cooperation among people based on shared goals, for example.

 “In the case of conditional cash transfer programs such as Juntos, for example, experiences in other countries have demonstrated that modifying the payment schedule can increase school enrolment,” said Alberto Rodríguez, World Bank director for Bolivia, Chile, Ecuador, Peru and Venezuela.

The report offers one such example: an experiment conducted in Colombia, where a conditional cash transfer program was modified to deliver some of the funds allocated to beneficiaries as a lump sum at a pre-determined time –identified by researchers as the time when families make decisions about school enrolment for the following year. That adjustment, which was designed to encourage people to focus on educational decisions, led to increased school enrolment the following year.

“In another experience, this time in Peru, it was found that sending monthly text messages encouraging individuals to save led to a 16% increase in their savings, as compared with those who did not receive messages,”  said Anna Fruttero, World Bank senior economist and co-author of the report.

To examine development work from a new perspective, the report establishes three principles of the human decision-making process: automatic thinking, social thinking and thinking based on mental models. Human thinking is largely automatic and depends on what comes to mind with the least effort possible.

New programs should take these ideas into account and be designed using a “learning by doing” approach. Mental models and other factors that affect human decisions are local and contextual. It is difficult to predict which aspects of program design and implementation will drive the decisions of people when they are exposed to a specific intervention.

This report can contribute to strengthening the decision-making process, even in the areas of fiscal and monetary policy, by helping to identify those tendencies. Nevertheless, this approach is still much more common among private-sector marketing managers and politicians running for public office than among individuals responsible for designing development interventions.

The report gives examples of how the three aforementioned principles are applied in different spheres, such as early childhood development, productivity, household finances, health and healthcare and climate change.

“A key result of recent research is that poverty negatively affects cognitive abilities and that policies targeting the poor can be designed to reduce some of the pernicious effects of poverty in terms of the capacity to choose and make plans for the future,”  said Renos Vakis, chief economist at the World Bank.

Policymakers should discourage people from making crucial decisions during periods of depleted mental resources. For example, poor farmers should make decisions about school enrolment during periods of increased income. There are also ways to simplify complex decisions, such as applying for a program in higher education. These ideas are valid for all initiatives where adopting the right decision is difficult. 

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