Poor Economics

Poor Economics

Recommended Reading: Poor Economics by Abhijit Vinayak Banerjee and Esther Duflo

Today’s recommended reading is Bannerjee and Duflo’s “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty”.

The radical rethinking in the tagline relates to the application of the scientific method, in the form of randomised controlled trials, to understand the choices and behaviours of the poorest people of the world.

In the same way pharmaceutical companies test drugs, Bannerjee and Duflo seek to document the actual effects of developmental interventions on the ground.

Conversations with people living on less than a dollar a day demonstrate that they are prey to the same apathy, procrastination and mistaken thinking as the rest of us. But where society frames the choices of the wealthy, the poor are responsible for even minute areas of their own lives; often placing faith in expensive cures, for example, rather than access preventative immunisations for which the “pay-off” comes in the future.

The poor are required daily to make complex economic decisions that people in developed societies rarely confront. Understanding the thinking behind the decisions enables us to provide the support to level the playing field.

For Bannerjee and Duflo, many interventions flow from the flawed perspective of those who have never experienced the realities of life in poverty. Their approach advocates seeking evidence-based understanding; making small changes, “an accumulation of small steps”, which circumvent the “ignorance, ideology and inertia” that so often derail development programmes.

The authors are Professors of Economics at MIT, and founder members of the Abdul Latif Jameel Poverty Action Lab (J-PAL), a research centre established in 2003 to promote evidence-based policy in the developing world. Abhijit Banerjee is Ford Foundation International Professor of Economics, and Esther Duflo is Professor of Poverty Alleviation and Development Economics.

Poor Economics was awarded the 2011 Financial Times and Goldman Sachs Business Book of the Year, and received an honourable mention in the 2012 UCLA Gerald Loeb Awards.