Kibrom Tafere Hirfrfot is a PhD candidate at Cornell’s Dyson School. Liz Bageant is a Research Support Specialist in Cornell’s Dyson School.
In this post we continue our coverage of the National Bureau of Economic Research and the Feed the Future Innovation Lab for Assets and Market Access workshop on The Economics of Asset Dynamics and Poverty Traps.
The two papers presented under the theme Psychology of Poverty, Hope, and Aspirations focus on internal constraints that may lead to poverty traps. Jonathan de Quidt and Johannes Haushofe present a theoretical framework for predicting symptoms of depression from economic primitives. The central thesis of the paper is that exogenous negative shocks cause changes to beliefs about returns to effort generating behavioral responses symptomatic of depression. Travis Lybbert and Bruce Wydick provide a detailed account of the concept of hope in different periods, cultures, religions and fields of social science as well as its relationship with the growing literature on aspirations in development economics, developing a theoretical framework for understanding the role of hope and aspirations in economic development.
Motivated by the globally high prevalence of depression and even higher economic impacts, de Quidt and Haushofer model depression as changes in a decision maker’s beliefs due to exposure to negative shocks. The primary channel through which negative shocks translate into symptoms of depression is the decision maker’s distorted beliefs about returns to labor effort. Negative shocks induce changes in beliefs that lead to behavioral responses symptomatic of depression. Downward revisions in beliefs about returns to effort lead to low self-esteem, pessimism about the future, indecisiveness, lack of motivation to complete tasks, and hopelessness, among others. In the economics lingo, this is congruent with reduced incentives for labor effort leading to a fall in labor supply, causing a fall income and consumption, and in turn leading to a depressed mood. In the extreme, this mechanism generates behavioral poverty traps when the negative shocks to beliefs about returns to effort is so great that the decision maker ceases to adapt her beliefs about returns to effort after actual realizations of expected states of the world.
The paper operates from the simple premise that negative shocks are prime causes of depression, which is congruent with some psychological theories of depression. However, depression may also be thought of as an illness, or reduced human capital, which can be impacted by treatment rather than incentives. This affects how we think about shocks to human capital, and the nature of interventions associated with depression. Further refinement of the model and empirical testing will break new ground in this largely understudied area.
Lybbert and Wydick offer a broad review of the concept of hope, encompassing philosophy, psychology, and theology. They carefully discuss its relationship with aspirations as well as how the two concepts relate to the different economic outcomes about which we care. They also clarify the concept of hope as it pertains to development economics. The authors define “aspirational hope” as comprised of a goal, a viable pathway to the goal, and the agency to progress along the pathway. So defined, hope is distinct from a wishful desire for deliverance by external actors. Aspirations are pertinent in determining the socio-economic conditions of individuals and communities at large in the sense that efficacy of effort depends on the type of goals chosen and the directions employed to achieve them. It is perhaps convenient to think of aspirations as target levels, or “reference points,” of the outcomes of interest against which the utility of outcomes is evaluated. In this setting, the choice of targets, perceived agency, and perceived constraints on pathways may combine to generate a self-reinforcing low level poverty trap. Thus, relaxing internal constraints (aspirations) may be a crucial complementarity to interventions that relax external (economic) constraints.
Lybbert and Wydick empirically test their theory in Oaxaca, Mexico in a population of 600 female members of 52 community banks allocated into treatment and control banks. The three treatments to improve members’ aspirations were: a motivational video about local success stories, distribution of refrigerator magnet templates for writing weekly goals, and four weekly group meetings about applying components of hope to practical problems. The authors find modest evidence that the intervention increased aspirations (but not other psychological variables). They also find some evidence of positive impact on sales, profit and savings. While these results are still preliminary, they suggest that aspirations may indeed play in shaping one’s poverty status.
One concern that comes with considering depression or aspirational thinking as poverty trap mechanisms is the possibility this opens up for one to blame the poor for the situations in which they find themselves; i.e. it is tempting to shift from considering the poor as trapped by outside constraints (such as market failures) to considering the poor as trapped by their own negative thinking. However, as pointed out by several scholars during the workshop, it is much more productive to think about the sort of physiological interventions suggested by these mechanisms as compliments to, rather than substitutes for, traditional interventions. If project implementers and project evaluators take account of not just the common external constraints (e.g. lack of access to credit) but also the emerging internal constraints as discussed in this session (e.g. aspirations), then we may begin to have a greater impacts and/or gain better understanding of the limitations of our interventions.