Karla Hoff GS ’89is a senior research economist at the World Bank and shewas co-director of the World Development Report 2015 on Mind, Society and Behavior. The report was cited in the New York Times as having helped make behavioral development economics a field that can produce “small miracles” from the perspective of standard economics. She sat down with The Daily Princetonian to talk about her career trajectory and the field of behavioral economics.
Daily Princetonian: How did you get to where you are now and how did you get into this work?
Karla Hoff GS ’89: I went to college at a time when college students weren’t thinking of finding a career but just of getting a very strong education. My favorite subjects turned out to be in French literature because I felt they were a way of discovering different ways of conceptualizing the individual and society. I didn’t want to be a French teacher. I wanted to continue using French so I joined the Peace Corps and went to Côte d’Ivoire. That was my first experience in a poor country. I got hepatitis and had to leave early and I wanted to return, but in a position where I could do development work. … It took me so long to finally get a job offer that I had given up and I had accepted a job from one of my teachers who left Fletcher [School of Law and Diplomacy] to head an office at the Treasury Department. I couldn’t change my mind after I did get a job offer with the UN because he’d moved mountains to get my job through, since Jimmy Carter had imposed a stoppage of all hiring. So I went and took that job, and really loved it for a couple years while Jimmy Carter was president and my old teacher was heading the office. I learned how international tax systems work. But when my boss left and when Ronald Reagan came in … I was dealing directly with people that I felt were just trying to abuse the tax system. … I was working extraordinary hours in what seemed to me a somewhat corrupt system and I just felt that wasn’t for me, so I wanted to get out. Everyone I worked with was either a lawyer or an economist. And I chose economics. So I picked up some courses … My first few jobs were completely applied theory. In the mid-90s, I was invited to apply for a research job at the World Bank and I ended up taking that job. Then I had to, for the first time, do field work. I initially started in India. … I had a very surprising result, something that no rational actor would ever do. … Then all I wanted to do was more study on behavioral economics and caste in India. So that explains how I was one of the first people at the Bank and doing research to get into behavioral economics and how I was in a position to accept a directorship for the [World Development Report] when the Bank chose to take on a topic of behavioral economics.
DP: Now that you have told me a little bit about how you got to where you are, can you tell me about the field you’re in? And behavioral economics as it is evolving?
KH: I would say there’s two broad streams of behavioral economics. One brings in just one new variable, the context of a moment. And it shows how seemingly unimportant details can change behavior. Did I remind you of an aspect of your social identity when you had to make a decision? Did I use language that made you feel a decision would affect a gain rather than a loss? Did I use language that would make you think that a decision will affect deaths averted rather than lives saved? So I make a decision — were you comparing yourself to one set of seemingly irrelevant groups, or another set of seemingly irrelevant groups? None of these things turn out to be irrelevant.So that’s the first main online casino branch of behavioral economics.
The second branch, which is the one I’m more interested in, brings in a second variable, besides the context of a moment. The second variable I call mental models. A sociologist at Princeton call it schemas. What they are, are mental structures that you use to process information. To organize the information and interpret it. And you can’t not use such structures. You’re confronted with extraordinary amounts of information. You have to consciously or unconsciously choose what to attend to, and what meaning to assign to it. And in doing those things, you are using mental structures, and what’s what we’re calling schemas or mental models. Some mental models could be idiosyncratic. Some could be innate. The ones I’m interested in are the learned mental models, the cultural ones. And once you think of that as a new variable, there’s a whole set of new things you can explain. For example, differences in behavior between groups. And a whole new set of variables you can implement. For example, soap operas seem to be a way to change how people think about the possibilities of the lives of a woman. … So it’s an enormously exciting way of thinking about what causes what, which is outside the standard economic model. ... I think the most exciting areas in behavioral economics are those that take into account not just the new variable of the context of the moment but also take into account the context to which we’ve been exposed for either a short or long or even remote period of time, and how they have affected our mental models, and therefore affect our behavior. … I’m broadly defining behavioral economics to include not just the work that counts, the quasi-rationality of decision-makers, but also that counts the historical influenceson our choices. And I’m interpreting those influences as acting through mental models which shape what we attend to, how we aggregate it, how we interpret it. And so it is very much in the spirit of behavioral economics, which is to build an economics around a psychologically more realistic notion of the individual.
DP: How does your work and study in the field of behavioral economics intersect with development work?
KH: Very closely. The central question in development is how can we increase the welfare of people in poor countries? How can we advance the income level of the average person in these countries? Behavioral economics offers a new set of tools for interventions and there are examples where they have been extremely successful in ways that are really not possible to interpret plausibly through standard economics … I think that behavioral economics initially was focused just on fixing small problems: how do we get you to save more? How do we get you to eat healthy? I feel it’s a very promising area to solve big problems. How do we get countries to give women a chance? How do we get countries not to tolerate corruption? How do we get countries to have norms in which people reliably perform their jobs?
DP: Given that this is such a new and evolving field, what would be your advice for students who are interested in studying and working with behavioral economics?
KH: My advice would be to learn how to run experiments and ideally to get practice running experiments. I would recommend to a young person that he get techniques to design, run and analyze experiments to try to pick up a one-year job or a two-year job right out of college running experiments and then figure out if he wants to do applied work or academic work. Does he want to do it in the field of psychology? Economics? Political Science? Sociology? All these fields contribute to an understanding of how people behave. All of them increasingly have a demand for experimental work.
DP: What’s next for you? What are research questions you still want to ask or projects you want to undertake?
KH: I’m finishing up right now — hopefully within the next few days — a paper with my Princeton thesis advisor called “Striving for Balance in Economics” toward a theory of the social determinants of behavior. It builds on the WDR. Then I’m finishing a paper based on fieldwork done over many years on the problem of the emergence of conventions. Economists tend to think that laws can fix problems. But if laws don’t have conventions that underlie them and certainly if laws go against the underlying conventions, very often the laws go numb. … If conventions are important, if you can’t just fix problems with laws, then you need to know, where do conventions come from and how can you get better conventions? … It was a really fun experiment that I think the WDR helped me understand better. And then my last project is about evaluating theater for development, which is participatory theater designed to help people think critically about oppressive institutions. Such a program has existed in Calcutta for 30 years. My colleague has been collecting data on it and we want to evaluate it.