Journal Article
Introduction: poverty, development, and behavioral economics

In the last two decades, questioning of the textbook model of individual choice behavior has accelerated. “Imperfections” of individual choice behavior are increasingly accepted by the profession as viable empirical phenomena to be explained and incorporated. Non-standard objectives and decision making—procrastination; overweighting low probability outcomes; focus on changes from current wealth as a reference point; choice between two alternatives depending on which is presented as the default option; willingness to sacrifice return for fairness of process or outcome, etc—have been investigated theoretically, empirically, and experimentally.

 

The award of Nobel Prizes to Daniel Kahneman and Vernon Smith (2002), of the Clark Medal to Matthew Rabin (2001), Esther Duflo (2010), and Raj Chetty (2013), and of the MacArthur Award to Michael Kremer (1997), Sendhil Mullainathan (2002), Esther Duflo (2009), and Raj Chetty (2012), have confirmed the recognition of behavioral economics as an important new departure in economics. The insights of behavioral economics have begun to be applied to development economics and in particular to the behavior of poor households in poor economies. Does poverty promote departures from the standard textbook model of rational choice? Are the departures from conventional models different in developing countries than in developed economies and are they possibly also more important when the decision makers are poor? Do such departures in turn promote poverty and hold back development and growth? And what policy interventions are appropriate for growth and poverty reduction in such a world? The importance of these questions is self evident. It is giving rise to a still small but growing and vibrant literature which incorporates experiments, new theorizing, In particular, experiments in the field and in the laboratory, drawing on the traditions in medicine and in psychology, have added a new dimension to empirical testing and validation in development economics.

 

The new evidence triggers new theorizing, which in turn calls for new testing. In recognition of the new frontiers being opened up and explored in this area, the United Nations University World Institute for Development Economics Research (UNU-WIDER) organized a conference to take stock of current knowledge, to draw out the major policy implications, and to chart promising areas for research. The conference coverage was wide ranging, focusing on poverty but with the perspective of development economics broadly construed. Papers included contributions to theory, experimental methods, and econometric analysis. Paper presenters were invited to submit papers to the journal in the normal way, and this Special Issue brings together papers that were accepted after the peer review process of the journal.