Ramban, Esther Duflo and the Power of Incentives

I sent Tyler Cowen this passage written by Ramban, a 12th Century Jewish Philosopher:

Set aside a sum of money that you will give away if you allow yourself to be angered. Be sure that the amount you designate is sufficient to force you to think twice before you lose your temper… (Ramban: A letter for the Ages translated by Avrohom Chaim Feuer Reishit Chochmah, Shaar Ha’anavah Chapter 3)

Mr. Cowen, along with a number of others, have found the site StickK of interest for its innovative incentivizing of human behavior with a monetary “stick”. The idea, as the quote indicates, is ancient. We’ve dealt with incentives before, primarily how incentives differ between non-profits and for-profits.

But this is a great lead in to the most recent Clark Medal-winner, Esther Duflo. The Clark Medal is awarded every year to the most innovative economist under 40; winners include Milton Friedman, Paul Krugman and Freakonomics co-author Steven Levitt.

Duflo’s contributions have been in the field of poverty research, running the Poverty Action Lab at MIT. Running “randomized field experiments”, that is actively instituting one minimal change into two similar situations to test its efficacy, they’ve made incremental but important progress in a range of fields from teacher attendance to preventing childhood diseases. Many of these studies bare out Ramban’s conclusion: simple, monetary incentives can reap major benefits; in Duflo’s words:

[If I had a million dollars to spend on one poverty alleviation program] I would give it to incentives for immunization. People in very poor countries spend very little on preventive care, maybe for not very good reasons.It is not that they are strongly opposed to immunizations, they just somehow don’t get around to it, or they have other things to do. And what you realize is that spending even a tiny amount of money to get them to invest in preventive care can do a lot.

Duflo’s co-head of the Poverty Lab, Abhijit Banerjee, mentions one clever incentive scheme:

A bunch of students came up with a brilliant solution… which is now being subject to a randomized evaluation in Pakistan. The idea is very self-incentivizing: we look for traces of the medicine in a patient’s urine. In the program the patient puts their urine on a test strip, and if they’ve taken the medicine it reveals a number or code which they can put into their cell phone and get extra minutes. In some ways it is a brilliant solution, but it may not work. The need for experimentation is based on the fact that theory fails often.
The greatness of the randomized studies is that they isolate these potentially hugely productive strategies and break their usefulness down to an essentially empirical question.
The actual perfect strength of the experiments can be questioned, but they do seem to point to the growing trend of thinking how, by maximizing efficiency and leveraging incentives we can save lives. As Banerjee says, the “details matter infinitely.”

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