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Taking Advantage Of Behavioral Economics Can Get Aid To More People In Poverty

Living in poverty can be so draining, it’s often impossible to find and locate help that’s available. Some science is helping aid organizations get their services in front of more people.

Taking Advantage Of Behavioral Economics Can Get Aid To More People In Poverty
“Behavioral science principles [have] the potential to improve the effect of development programs and development policies.”

One of the biggest challenges that aid groups face when battling poverty in the developing world is that being in poverty can make it nearly impossible to act in your own long-term best interest. Offering someone access to a savings account that generates good interest, for instance, isn’t particularly enticing to a person who is worrying about not having enough money to get through that day. It’s harder for a family to save scholarship money earmarked for an upcoming school enrollment, say, when everyone’s stomach is rumbling.

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These problems stem from two well-known psychological ticks that come with stress: present bias (favoring immediate rewards over long-term considerations) and limited attention (when lack of money, time, hunger, and/or sleep affect rationalization). Sure, the wealthy might be pressed for time, too, but they compensate by hiring more help or outsourcing chores. Poor people can end up trapped in a vicious cycle.

“Once you put in that sort of extra mental effort, it’s often zero or close to zero marginal cost in terms of the actual execution of the policy.” [Image: RadomanDurkovic/iStock]
To combat this, some interventions are designed to reduce the upfront costs (in terms of money, but also time). Others can be presented at moments when the beneficiaries feel somewhat financially stable. Together, these assists toward a more stable financial future have been shown to be extremely effective, according to a recent review in the journal Behavioral Science & Policy.

The article, entitled Overcoming Behavioral Obstacles To Escaping Poverty was commissioned by the Behavioral Science and Policy Association, a group of public and private researchers, policy analysts, and aid agencies committed to exploring the potential of behavioral economics to nudge people in subtle ways that also benefit them.

In Morocco offering households assistance filling out forms for an interest-free loan for piped-in water increased program participation by 59%. [Image: RadomanDurkovic/iStock]
“Even considering just a couple of the most widely and thoroughly researched behavioral science principles, [they have] the potential to improve the effect of development programs and development policies–in some cases pretty dramatically–at little or no cost,” says Christopher Bryan, an assistant professor at University of Chicago Booth School of Business, who co-authored the report. “Once you put in that sort of extra mental effort, it’s often zero or close to zero marginal cost in terms of the actual execution of the policy.” (Read more examples from the report here.)

A huge stumbling block for getting assistance, for instance, is paperwork. But offering assistance that saves time and eliminates confusion, by, say, auto-populating forms ahead of time, or offering some sort of automatic enrollment could be an equally powerful incentive: In Morocco, for instance, offering households assistance filling out forms for an interest-free loan for piped-in water increased program participation by 59%.

The number of HIV patients in rural Kenya who stuck to their medical treatment regimens changed from 40% to 53% with weekly text reminders. [Image: RadomanDurkovic/iStock]
Strategically timing when and where a subsidy is offered can also dramatically affect participation. To increase the rate of health insurance adoption in Tanzania, for instance, advocates have tried targeting cash-transfer points on disbursement days—the place where people are most likely to be flush and optimistic—increasing enrollment by 20%.

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To that end, some farming improvement groups have learned to approach growers about reinvesting in better seeds or fertilizers for the next year right after their current harvest. That concept, matched with a limited-time discount to take advantage of it, has proven particularly effective, notes the review. In Bogota, Columbia, the distribution of educational subsidies has shifted to be aligned more closely with when that money needs to be spent so it isn’t used for other things, something that has led to higher participation rates among the neediest.

Basic reminder prompts for dire situations that can begin to feel commonplace help, too. As the report notes, the number of HIV patients in rural Kenya who stuck to their medical treatment regimens changed from 40% to 53% with weekly text reminders. Even informal reminders and rewards can be powerful: In Chile, the members of another community improved their ability to generate savings not by tracking interest rates, but by forming a self-help group, where people openly share goals and cheer progress.

For Bryan, one of the most surprising findings was how easily some life-improving changes might be implemented. “When people’s attention is so heavily taxed that they simply can’t devote any of it to noticing interesting things that might be useful to them, then something as simple as pointing out what seems obvious to you can be really useful.”

About the author

Ben Paynter is a senior writer at Fast Company covering social impact, the future of philanthropy, and innovative food companies. His work has appeared in Wired, Bloomberg Businessweek, and the New York Times, among other places.

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