Rethinking Poverty — A Scientific Approach to What Actually works
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Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty by Nobel prize winning authors Abhijit Banerjee and Esther Duflo is a fantastic and easy read that explores the complex trade-off’s faced by people living in poverty.
Rather than relying on simplistic narratives about why poor people make certain choices the authors show why the reality is more nuanced. There is no one-size-fits-all solution, and our assumptions about what works or fails are often just that — overly simplified. Through the scientific approach of randomized controlled trials (RCTs), the authors are able to understand the real motivations of the poor and test interventions in nuanced ways to identify what actually works to improve lives.
Some key insights:
🧾 Microfinance is not a silver bullet
Microloans can help people manage their daily needs or emergencies but don’t reliably lead to successful business growth.
Example: In many studies across India and Morocco, microcredit increased short-term consumption and helped households during tough times, but did not result in sustained business income or long-term gains.
🎯 Targeted subsidies can work
Giving away essential items like bed nets or vaccines doesn’t create dependency and often results in better outcomes.
Example: In Kenya, offering free anti-malarial bed nets dramatically increased usage and reduced child mortality. Charging even a small amount dropped uptake significantly.
🏥 Health is under-consumed
People often avoid or delay healthcare, even when it’s cheap or free, due to behavioral biases and mistrust.
Example: In India, providing small incentives like lentils and ensuring consistent clinic availability led to a major increase in child immunization rates.
📚 Education decisions are complex
Parents often invest in education when they believe their child is a superstar, and ignore it otherwise.
Example: A study showed that providing free meals and deworming tablets in Kenyan schools increased attendance and future earning potential — small nudges with long-term impact.
💰 Savings matter more than credit
Many poor people prefer a safe place to save over borrowing money.
Example: In the Philippines, when offered commitment savings accounts (which restricted withdrawals until a target was met), participants saved significantly more — highlighting the power of structured saving.
📡 People lack reliable information
Decisions are often based on myths, misinformation, or lack of trustworthy sources.
Example: In West Bengal, parents undervalued vaccines due to rumors. But consistent messaging from trusted health workers combined with small rewards led to a huge increase in vaccination rates.
🏛️ Institutional quality matters, but small fixes help
Broken systems don’t require massive overhauls — even small tweaks can make them more effective.
Example: In rural India, linking teacher pay to attendance using camera-based monitoring reduced absenteeism and improved student performance — a small, targeted change with big results.
The bottomline take away is that the poor aren’t any more irrational that then rest of us. The poor face real constraints and have to make many more tough choices each and every day. Our biases and assumptions are not only often wrong, they are also wildly unhelpful.
By leveraging data, observing the nuances, listening with humility we can potentially design interventions that can work.
