How do psychology and culture influence development?

At 23, starting graduate school for international relations, the prospect of taking economics frightened me. Having just spent my college career as a history major that marched for peace probably had something to do with it. There was also that time in 4th grade when I got a D in math, but we won’t go there.

Anyway, it was a very nice surprise when I found that the math and logic of economics made sense to me. I was proud of myself for “getting it.” And of course, for starting my own subscription to the Financial Times. Ah, the conspicuous consumption patterns of a newly-minted student of economics.

But I had moments of doubt.

I remember one in particular, sitting at the back of a microeconomics class, as the professor explained how consumers, i.e., human beings, allocate income to get the most “utility” or “satisfaction” out of the least expenditure. And how the more income a person has, the more total satisfaction they have.

I was incredulous. Did the professor just draw some lines with chalk and prove that more money leads to more happiness? Microeconomics is based on this? But real satisfaction has nothing to do with buying things! What about doing good and making sacrifices for others, didn’t those influence income decisions too? I was pretty sure my parents proved that by raising five kids on a firefighter’s salary.

I kept quiet because I was too insecure to express myself. But I believe that not a few economists would stand with me today in questioning the assumptions that underlie the theory of “utility maximization.” Actually there were probably some of them around in 1998 too. I just didn’t know it.

Yes, something has been afoot in economics. Some say it goes back to Adam Smith’s Theory of Moral Sentiments—but I’d guess it only became mainstream since the recent financial crisis that destroyed theories faster than fire on celluloid. I’m talking about the very tight relationship between our humanity and economics.

As you can probably tell, I didn’t become an economist, so I’ve watched the rise of this field—behavioral economics—from the sidelines. But working at the World Bank, I have a pretty nice seat at the arena. Over the past few years, I’ve done internal write ups on talks byRobert Shiller, Dan Ariely, and Tim Harford all of whom have written popular books that touch upon the topic.  (Still waiting hopefully for Kahneman to show up.) And I’ve listened to our own in-house researchers, like Karla Hoff and Michael Woolcock, wax philosophic on heuristics, cultural frames, and confirmation biases and how they apply to development economics.

If I could translate these experts’ works into one basic refrain it would be this: Human beings, their feelings, behaviors and decisions they make are unpredictable, sometimes irrational, and influenced by a variety of factors like biology, social norms, and the mental models created by our personal histories and backgrounds.  We need to question our assumptions and tweak our economic thinking—and by extension our policies—to reflect this.

I am happy to say that on December 2, 2104, the World Bank will break its own ground in this field with the launch of the 2015 World Development Report on Mind, Society and Behavior. The report explores how psychology and culture influence development, from the decisions that poor people make to the biases that development professionals have about poor people, and much more. Let’s just say our mental models here at the Bank have come a long way from the “Washington consensus” and structural adjustment. (And mine have come a long way since that 4th grade D in math.)

I believe it should give us hope that the models of economics—and now the frames for thinking about development economics—are colored with the utter ambiguity of the human psyche.

Why? Because ambiguity means nothing is black or white, 100 percent right or 100 percent wrong. And because the acknowledgement of this ambiguity means a lot of introspection has happened—that a sort of evolution is underway. Assumptions are open to testing and awareness is cultivated. With all that comes humility, tolerance, and an exciting unpredictability that opens the door to new possibilities—which if evolution is what it is, also includes the possibility (and acceptance) that our ideas and modes of today will eventually give way to new ones. So goes for life, so goes for economics, or anything else for that matter, I believe.

Psychiatrist and Holocaust survivor Viktor Frankl wrote, “A human being is a deciding being.” I agree with him and I’m happy that economics does too, now in a deeper way.

This post first appeared on The World Bank’s Development Blog

Author: Dani Clark is the Editor and Writer of Staff Engagement and Internal Communications at the World Bank Group.

Image: A woman with a baby on her back looks on at an informal settlement in the capital Luanda, August 30, 2012. REUTERS/Siphiwe Sibeko.