Behavioural Economics and International Development
| DOI | http://doi.org/10.1111/j.1758-5899.2011.00113.x |
| Published date | 01 May 2012 |
| Date | 01 May 2012 |
| Author | Michael Chibba |
Behavioural Economics and
International Development
Michael Chibba
International Centre for Development Effectiveness and Poverty Reduction
Old and ancient roots
Adam Smith is one the founding fathers of modern eco-
nomics. It is therefore not surprising that even within
the context of behavioural economics, we are often
inclined to refer to the Theory of Moral Sentiments
(Smith, 1971 [1759]), and ⁄or The Wealth of Nations
(Smith, 2007 [1776]), as both publications advance some
of the basic tenets of modern economics, including
rational behaviour, self-interest and indeed how to
address poverty and other developmental matters as
well. What is not widely known is that the intercon-
nectedness of behaviour and development has been
recognised for centuries. For example, in ancient India,
Kautilya, who was a statesman, scholar and sage in 4th-
century BC, wrote about public policy, culture, behavio-
ural economics, poverty and welfare in Arthashastra (The
Hindu, 2002; Sen, 1988; Sihag, 2005). Yet, behavioural
economics and tackling the core issues of development
have arguably made little or no progress until the last
few decades, notably through the early path-breaking
work of Herbert Simon, Douglass C. North, Amartya Sen,
Daniel Kahneman and Vernon Smith, among others – for
example, see the article by Smith (1987).
What is behavioural economics?
Despite its old and ancient roots, I define behavioural
economics as a relatively new and growing field within
economics that applies cultural, ethical and psychologi-
cal insights into human behaviour to explain economic
decision making. In doing so, it also advances an alterna-
tive (and a supplementary perspective) to the rational
behaviour and self-interest model that is at the heart of
neoclassical economics. This definition is broader than
that used by many economists, but it is generally consis-
tent with the one offered by the Society for the
Advancement of Behavioural Economics (SABE). How-
ever, I do believe that the link between the micro and
the macro – which is usually overlooked by many aca-
demics, researchers, practitioners and policy makers – is
fundamentally important as well in the application of
behavioural economics to international development.
Selected literature review
To impart a semblance of the emerging shape of this
new frontier, I start with the dawn of the millennium,
when a thought-provoking paper entitled ‘Values Matter’
was published (see Ben-Ner and Putterman, 2000). I cite
this paper not because it was a seminal piece of work,
but because it aptly captured the state of affairs in our
subject matter at that time. Four aspects of the conclu-
sion reached by the authors are noteworthy: (1) a better
working knowledge of the nexus between institutions,
incentives and values is required to improve the design
of social policies with economic dimensions; (2) design-
ing economic institutions and social policies where the
only human value is the pursuit of self-interest is unsci-
entific and unwise; (3) the real world is also one where,
rather than human opportunism and selfishness, team-
work, mutual support and sympathy or a sense of duty
in the pursuit of self-respect are not uncommon; and
(4) we must understand these behavioural dimensions
‘more fully and more accurately if we are to make fur-
ther progress in the aim of ameliorating the condition of
society’ (Ben-Ner and Putterman, 2000, p. 58).
A few years later, Peter Diamond and Hannu Vartiai-
nen edited a book entitled Behavioural Economics and Its
Applications (2007), which was a collection of papers
from a conference held in Helsinki in 2004. The publica-
tion covered numerous applications of behavioural eco-
nomics to specialised areas within economics, including
a rather limited focus on international development.
Indeed, despite the fact that behavioural economics’
popularity has advanced quite rapidly over the past
decade, its focus continues to rest overwhelmingly on
inquiry within the context of rich countries. This bias can
be attributed to the following factors: the neoliberal
ideology (i.e. market fundamentalism), the neoclassical
economics paradigm (especially the rational behaviour
model), aid priorities of Organisation for Economic Coop-
eration and Development (OECD) member states, and
the fact that research funding and priorities did not even
include behavioural economic dimensions as a promising
area of investigation in the developing country context.
Furthermore, behavioural economics simply did not have
Global Policy Volume 3 . Issue 2 . May 2012
ª2012 London School of Economics and Political Science and John Wiley & Sons Ltd. Global Policy (2012) 3:2 doi: 10.1111/j.1758-5899.2011.00113.x
Practitioner Commentary
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