The World Development Report 2015 is based on three main ideas: people think fast, relying on intuition more often than careful analysis; thinking employs mental models rooted in particular cultures, with the result that context has large effects on human judgment and behavior; and social emotions and social norms motivate much of what people do.
Together, the three pillars of our framework mean that development professionals need to look more deeply inside the economic actor, at the individual’s mental processes. They also need to look outside the individual, at the mental models that he or she has learned from others and at the social contexts that activate the particular mental model that an individual uses. Policymakers need to zoom in at the level of cognition and zoom out at the level of cultural mental models, social contexts and norms that enable and constrain how people think.
The three pillars rest on an enormous body of research. Part One of the Report will describe exciting research in the modern behavioral and social sciences that opens up the black box of cognition. The psychologist Daniel Kahneman, with the late Amos Tversky, established through a series of remarkable experiments that people tend to evaluate alternatives quickly, based on what first comes to mind. Research has established that this cuts across wide swathes of human behavior.
Social psychologists and sociologists have shown that fast thinking, and even much of our slow and deliberative thinking, relies heavily and uncritically on the culturally available mental models. These are knowledge structures that represent objects or events and provide default assumptions about their characteristics and relationships.
Finally, an intriguing implication of sociality is that cooperation may be easier to achieve than is commonly recognized. Even the presence of a minority of cooperative individuals can, under the right conditions, swing an entire population towards large-scale cooperation. As the economists Colin Camerer and Ernst Fehr state, social behavior can dominate “economic man.”
New policy targets
This richer understanding of decision-making suggests new targets for development policy. Part Two of the Report will apply this research to development policies for addressing poverty, finance, productivity, health, children, and climate change. In all of these domains, the standard tools of micro- and macro-economics – prices, investments, and regulation – remain relevant, but the Report demonstrates that new policy ideas based on a richer view of decision-making can yield high economic returns. These new policy targets include:
- the choice architecture (for example, the default option)
- the scope for social rewards
- frames that influence whether or not a norm is activated
- information in the form of rules of thumb
- opportunities for experiences that change mental models or social norms
The main message of the Report is that is that every policy rests on explicit or implicit assumptions about how people make choices, and that those assumptions are incorrect more often than we believe. For instance, development practitioners and policy makers sometimes assume that people take action if and only if the benefits of doing so exceed the costs. If people think fast most of the time, there are good reasons to question that assumption. Development policy will be more effective if it is based on a more realistic account of decision-making and behavior.
Consider poverty. Poverty is best understood not only as a state of deprivation but also as an environment that affects decision-making. The distractions and preoccupations that typically accompany poverty impair the cognitive development of children and the quality of decision-making of adults. Thus, one way to help people in poverty is to make it simpler for people to make good decisions—to access clean water, enroll their children in school, and open a savings account. Lowering the “cognitive taxes” associated with access to basic services is a policy idea that the WDR will describe and assess.
Consider also development policymakers. They are subject to the same behavioral biases in their professional work as they are in ordinary life. They may be overconfident about the prospects of an intervention, they can become overwhelmed by complexity, and they bring to their work mental models that influence their ability to process information. These “high modernist” models often result in a mismatch between the formal institutions that development professionals recommend and the informal institutions that drive behavior in many economic, political, and social settings.
The Report thus tells two tales. The first is cautionary. It emphasizes the need to understand context and a more complex set of human motivations before designing policy. It also emphasizes the need to learn by doing because even small design changes can have big effects on behavior. A policy that works well in one context may fail miserably in another even when it might appear that the economic opportunities are the same.
The second tale is hopeful. In recognizing previously unrecognized cognitive and social processes, it points to new opportunities for promoting development.