Behavioral Economics in Practice

The book by Dean Karlan and Jacop Appel is called “More than Good Intentions” discuss the use of randomized control trials in developing countries to test which kind of interventions are more effective. The book is a great read and provides interesting insights why so many development interventions not work. Instead of focusing on the financial incentives only, behavioral economics include behavioral challenges of humans. Like our difficulties to control out spending and saving activities, our tension to chose convenient solution instead of appropriate solutions for the long-term.
For example, microcredit has had a lot of attention recently as a way to alleviate people from poverty. What is actually happening is more complicated. Sometimes it helps people to get out of poverty, sometimes it provides households funding for some new appliances. Controlled interventions enable us to test what may work. For example, having small groups who get a micro-credit who meet weekly might have more effect than individual loans.
Besides the results from the behavioral economics studies, the stories of the researchers in the field are worth the reading of the book. Their incentive oriented focus in discussing practical experiences on why people make use of opportunities available to them provides a good insight into the challenges to alleviate poverty.