The Pragmatic Rebels

The financial crisis blew a hole in big-think economics, raising the profile of a new breed of skeptical empiricists committed to assiduous testing and tangible results, no matter how tiny. Even lentils can lead to little miracles

By Maureen Tkacik

Photo Illustration by Tamara Shopsin and Jason Fulford

Capitalists have devised countless ways to separate people from their money. Big-box retailers employ "markdown optimization" software. Chain stores break out the new seasonal collections right when the IRS sends out its first refund checks. Apparel brands release special "payday" promotional codes to online shopping sites on alternate Fridays. The behavior of the flush consumer is tracked far and wide.

Until Esther Duflo and a network of like-minded professors came along, no one spent much time tracking the spending habits of, say, Western Kenyan maize farmers.

Where buying power is minimal and retail sales figures don't exist to be analyzed, consumer behavior would seem a fruitless area of study. Duflo, 38, is an economist at Massachusetts Institute of Technology's Abdul Latif Jameel Poverty Action Lab (J-PAL). Last year she received a MacArthur "Genius" grant, and in April she won the 2010 John Bates Clark Award, considered a stepping stone to a Nobel. Yet her work is so minutely focused that its importance is not easily grasped at first glance. In 2000, Duflo and colleague Michael Kremer embarked on an extended inquiry into what was essentially a sales and marketing mystery: Why didn't the maize farmers of Kenya buy more fertilizer? Calcium ammonium nitrate was widely known to be effective on maize, the Kenyan Ministry of Agriculture officially endorsed its use, and market surveys conducted by a Dutch nongovernmental organization suggested that the product was held in high regard among farmers. Most expressed their intention to use it in the future, yet only 29 percent had done so the season before. Fertilizer represented the most important, logical, life-improving purchase these poor farmers could make. So why were so few of them buying it?

Working with the Dutch NGO International Child Support, Duflo, Kremer, and their then-assistant Jonathan Robinson (now an assistant economics professor at the University of California at Santa Cruz) ran a three-year experiment comparing the output of fields where the fertilizer was used to fields where it wasn't. On average, the fertilizer proved effective, but the cost-benefit analysis varied widely among plots. The official treatment recommended by the Ministry of Agriculture was unprofitable for most farmers, whereas halving the prescribed quantity and skipping the recommended hybrid seeds yielded a steady 70 percent annualized return on investment.

The first trial yielded a convincing advertisement for the virtues of fertilizer; 97 percent of the farmers told researchers later that they planned to use it next season. Only 38 percent followed through, and the team from MIT had an epiphany: When the farmers said they were too poor to buy fertilizer, they actually meant that they were temporarily broke. The money that came in after the harvest had been spent on other things before the next planting season arrived. An economist would describe the farmers as "stochastically present-biased."

Duflo had an idea: What if they got farmers to commit to buying fertilizer right after harvest, when they were still flush, by offering free delivery on their fertilizer shipments? The catch was that they had to commit their funds then and there. To gauge the program's effectiveness, they also monitored a control group of farmers who received no special offers. Finally, later in the season, they offered another group of farmers a straight-up subsidy, a 50 percent discount.

The results were striking: About a third of control-group farmers used fertilizer that season, vs. 45 percent of the farmers offered free delivery, and 46 percent of the discount voucher recipients. There was virtually no difference between the demand for full-price and half-price fertilizer if the full-price fertilizer was sold at the right moment. So between two effective policies with identical outcomes, one might cost three times as much as the other, all because of an irrational—and utterly commonplace—quirk of consumer behavior: the failure to plan ahead.

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