Abhijit Banerjee: "Poor people also just want to live their lives. They do not necessarily want to make as much money as possible."
Apr 2023
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Life in poverty
Nobel Prize winner and UBS Center Advisory Board member Abhijit Banerjee hated school and became an economist by accident. Today, he is overhauling our ideas of life in poverty with field experiments.
This interview by Reto U. Schneider was originally published in German in Swiss NZZ Folio on the topic "Rich and happy?" on 3 January 2023. Translated and edited for layout purposes by the UBS Center.
Mr. Banerjee, you received the Nobel Prize in Economics in 2019 for your poverty research. What did you do with the money?
I donated it to fund research by scientists from developing countries. It is a matter of concern that research there is conducted almost exclusively by foreigners. The reason is not that there are no good economists in developing countries, but that they have a hard time getting funding.
What is your relationship with money?
I'm an "I don't worry about it" person. I wouldn't spend money on a cruise. We hardly ever go to restaurants with the family, maybe once every couple of months. To be honest, we have a lot of money compared to our needs, so we don't spend time thinking about it.
You received the Nobel Prize together with your wife Esther Duflo and Harvard economist Michael Kremer. Do you ever argue with your wife about money?
Never. We don't even discuss money.
You grew up in India, your parents were both economists. What did money mean to you at home?
We were brought up to be thrifty. It's not that my parents were poor, but they maintained a rich social life. We always had a lot of people in our house, and that cost money too. So we had a lot of clever solutions to put something on the table for a large number of people.
Your life might have taken a different turn if you hadn't grown up in that particular house in Calcutta.
It was right next to a slum. And I think it makes a difference that I grew up with poorer people. You notice a lot of things. The differences were very noticeable, many children didn't go to school, many didn't even own clothes. Families had money troubles. On the other hand, I saw that there were intelligent and interesting people in the slum. They were my friends, and we played together. And they were better than me in most things.
Did you envy those kids because they didn't have to go to school?
Oh yes, often. I hated my school.
Were you a good student?
Mediocre. My parents were academics. The teachers assumed I was mediocre because I didn't have enough stimulation. So they tried to encourage me more, but that was an optimistic interpretation of the situation at best.
High expectations were set for you because of your parents. Do you think false expectations are a problem at school in general?
I think they are a big problem for poor people. I've been in schools where the teacher explicitly said, "This child is one of those kids who won't learn anything. It's not worth the effort. They just can’t learn." That's very common. The teacher decided: You are an idiot. Then you get the result you predict, which is that of course you're an idiot.
Later you studied economics. Was that always your career aspiration?
No, never. I had a very clear idea of what I wanted to study, which was mathematics. In my generation, there was a preferred place in India to study mathematics. They only accepted 15 people there every year. It was quite competitive, but I was good at math and was admitted. But once I was there, I quickly realized that I didn't want to study math at all.
Why not?
It was just too boring. There was a lot of homework and little time for social life. And there was no politics. And I'm interested in all those things. It was a very narrow world.
And then how did you get into economics?
When I wanted to switch, there weren't many options left. In my time, it was common to study computer science or engineering, but it was already too late for that. If I didn't want to lose a year, subjects like economics, literature, or history were all that remained. My parents then convinced me that economics would be better. They usually didn't butt in, but in this case, they advised me against history because I was good at math. And because I didn't have a strong preference at the time, I said, "All right, I'll major in economics."
When did you turn to the topic of poverty?
I have always been interested in politics. So the interest in these issues was there. But when I studied, development economics was still in its early stages and not very interesting. I never really studied that discipline. I studied economic theory, so I was more concerned with abstract models. I liked that a lot, and I took a job as an economic theorist. But in the process, I realized that I could make a connection between economic theory and poverty, that is, poor people and why poverty exists in the world.
Where did the original interest in politics come from. Did it also have to do with your family?
Oh yes, especially my mother was always political and discussed good or bad government policies. My father was less so, but he, too, was interested. We talked a lot about politics and political programs at home.
You have become famous for not proposing grand theories about economic processes, but simply trying out measures in controlled experiments. When did that happen?
In the mid-nineties, but it was a slow development. My most cited study, by the way, is still a theoretical paper I wrote at my first position as assistant professor. I enjoyed the theoretical work, but I wanted to learn more about how things worked in practice. And so I turned more and more to empirical research. It seemed easy to come up with any stories, but you never knew if there was anything to it or not. So I moved on to experiments.
By this you mean scientific experiments with an experimental group that is exposed to a measure and a control group in which nothing is done. You gain your insights by observing whether people in the groups behave differently.
Exactly. I was convinced that these field tests would bring me very close to reality and thus closer to concrete measures. I thought that this would also help me to become a better theorist.
Was it also about helping people in poverty?
Yes, but I was not confident that the experiments would prove effective at the political level. Only experience taught me that it works. I did not set out with the conviction that I would improve people's lives.
You conducted your first experiment in schools. Was that your idea?
No, it came from the aid organization we were working with. I was first interested in trying out the experimental methods. So I went and said, "Tell me a question that interests you, and I'll design an experiment to answer it.” We still often develop our experiments this way today. And they picked a question that I thought was interesting: are two teachers in the classroom better than one? I thought the answer was obvious after all, and the people in our partner organization thought the same thing. The children in question needed individual attention because they are often only taught in one class. Some children were five, others ten or twelve years old. The experiment in the Indian state of Rajasthan was to randomly select some schools and put two teachers in a class instead of just one. Surprisingly, it didn't work. We had made a mistake.
What did that mean?
The first experiments disproved seemingly obvious hypotheses. We kept discovering processes that were completely unexpected. This was a lifelong lesson for me and strengthened my confidence in the experiments.
So was the experiment in the schools a turning point for you?
It wasn't a turning point in the sense that I could have done a lot of experiments after that. I lacked the means to do so. But I understood that such field experiments were much more interesting than I had assumed.
Did you ever figure out why doubling up on teachers had no effect?
We have at least a very educated guess. The teachers teach according to a fixed curriculum that many children can't follow. So they soon teach only a few of the children. So it doesn't matter if there are more teachers because many kids don't follow anyway and just sit there. The teachers didn't bother to help them catch up.
Are there other examples where a plausible measure turned out to be ineffective?
Cookstoves in developing countries that reduce indoor pollution have not been able to catch on.
Why not?
One reason is that you cannot carry them outside. They are built in and have a chimney. But we observed that people want to cook outside when the weather is nice. Although indoor air pollution is indeed a big problem and the new stoves reduced it, the bottom line is that they were ineffective.
You have undertaken studies in many countries. Have you learned anything about human nature in the process?
We have conducted the same experiments in several countries - with similar results. The results seem to have less to do with culture than with the fact that economic opportunities and prices differ. There are also similarities in education. Teachers are really committed to teaching according to the curriculum. Yet children fall behind and don't learn much. This seems to be a worldwide problem, particularly so in Asia and Africa, but we have seen it in many countries. But you asked me about human nature. It strikes me that economists assume that people are always looking for opportunities to exploit. People were always looking to optimize their profits. There's not a lot of evidence for that. Poor people also often just want to live their lives. They don't necessarily want to make as much money as possible. This is evident everywhere.
In your experiments, you sometimes distribute goods to find out how they change people's lives. Does that never lead to problems?
We did an experiment where we gave away a cow, six goats, or tools. But people were suspicious. They simply refused to accept the gifts because they feared that there was a catch. They thought, for example, that they would have to convert to another religion if they accepted the things.
What happens when the people in the control group who get nothing find out about the other group and become envious?
This can be a problem. We then try to explain that we don't have enough resources to provide for everyone, so we allocate by lottery. People usually understand that well. After all, many other things in life are allocated arbitrarily.
Are the results of your studies always welcome?
Of course they aren’t. Many people are reluctant to believe the results. When we published our conclusion on microcredits, we caused a shitstorm.
Microcredits are small loans for small businesses that were said to have a positive effect in poverty reduction. Our experiments could hardly prove any effect.
People got really upset with us and made all kinds of specious arguments as to why we were wrong. I think in the end the consensus changed in our favor because the evidence was clear. But it took a while.
Nor has it been confirmed that wage transparency is always a good thing.
For good reasons. Within a company, salary differences are often overinterpreted. For example, I ask myself, why is your salary higher than mine? Does that mean the company doesn't value me? But maybe you only did one good deed and got a raise for it, and I wasn't even there at the time. We tend to attribute pay differences to people’s fixed characteristics of people rather than sporadic events. On top of that, I'm annoyed with you because you earn more than I do, but you don't even believe that you perform better than I do. But now you are starting to think that I must think that you are better than me.
Have you ever had to capitulate to your own data and walk away from a conviction?
Oh yes. In one experiment, we worked with a newspaper. The newspaper selected about fifty constituencies in which to publish a report on the incumbent's performance before the elections. We wanted to find out whether the incumbent would get more votes if he performed better. But it turned out that the incumbent's performance did not matter at all. All the incumbents whose performance had been published did worse, whether they were good or bad. This was very disappointing. After all, the heart of democracy would be the idea that you can elect people who are good and serve you.
The Nobel Prize has made you famous. Recently, you even became part of an experiment yourself.
I recorded a video message to tell people to take precautions against Covid. It was sent to 25 million households.
And did the message have an effect?
Yes, it worked. We actually saw behavioral changes.
Has the study been published?
No. The problem was that it remained unclear whether the message or my person was the reason for the change in behavior.
We all have a tendency to ignore facts and stick to our preconceived notions. How do you protect yourself from this?
We try to distance ourselves from our own work. One method is to write down exactly how we are going to analyze the data before the experiment, and to agree in advance to publish all the results. So I say I'm going to do exactly this analysis, and whatever comes out of it will be reported.
You said at the beginning that you were not satisfied with the theories about poverty. Have you found an answer to why some people are poor and others are rich?
One of the reasons is access to resources. If you were born poor, the market won't just give you a lot of money to invest. If you are poor, you can't borrow money or convince people that you will make it. People think you are probably incompetent and not capable of anything. Everything speaks against you. Poor people are also often depressed and less optimistic. That's why they lack the strength to tackle something. Of course, luck is also needed. But to be able to use luck, you often have to start with some resources.
Is it the state's job to provide balance?
Absolutely. Think of someone who happens to be born into a poor family and therefore can't go to an expensive private school or get tutoring at home. That brings fundamental disadvantages and is really unfair.
One way to equalize educational opportunities is to give preferential university access to people from underprivileged groups, as is done in the United States. Doesn't this inevitably amount to discrimination against other students with greater merit?
A lot of what we think of as merit is, to me, the result of privilege. I think it's an illusion that there is only one objective measure of merit that we're now overriding and using something else to decide who gets into the university. We don't even know what merit is. But we do know that it makes a big difference if you come from a milieu like mine, for example. I grew up surrounded by books, with people who had a lot of cultural knowledge in one form or another.
Agreed. Nevertheless, the fact is that space at a university is limited. If you change the admission requirements to ensure greater diversity, then people who are now no longer admitted may perceive this as unfair.
But is it really? There is a claim that applying non-objective notions of merit to admissions is more than just redistribution. That it is something profoundly unjust. Sure, if I take money away from the rich and give it to the poor, they don't like that either. Redistribution has winners and losers. But the only argument that can be made against it is that those limited college admissions could be wasted because the people who benefit from redistribution might not be able to complete their education. And that's a claim that we can test empirically. It seems to me that there is no compelling evidence for that.
Do you ever think about what you would have become in another life? Can you imagine yourself as a Wall Street banker?
No, that would be too boring for me. I could have become a journalist or a civil servant. But I'm not interested in helping other people earn a lot of money.
If you could teach people one thing or eradicate one myth, what would it be?
I would like to get rid of the hostility based on random characteristics such as religion, race, gender, or caste. That would be great. Because of them, we constantly inflict a lot of harm on each other. If you ask me in the context of my professional expertise, I think many people don't realize what credible evidence is. People believe all kinds of things based on very little evidence. Part of my training was to be skeptical of most things that are claimed. And I think that's a good place to start.
At the beginning, you told us about your childhood home on the edge of a slum in Calcutta. Have you been there again?
I lived there until I was twenty. And until my mother sold the house in 2011 because of all the stairs, I visited several times a year.
Has the face of poverty changed there? You spoke of children who did not even have clothes when you were growing up there.
Clothes are a tangible measure of progress. Now everyone has intact clothes. And all the children go to school, usually in uniform. They also look healthier and are bigger. You no longer see malnourished children, bloated bellies.
Has the world generally developed positively over the past 50 years?
Absolutely. Apart from climate change, which ultimately may kill us all, things have changed for the better. Infant mortality is much lower. Maternal mortality is much lower. Poverty is much lower. Malnutrition is much lower. Education rates and school attendance are much higher, no question about it.
Nobel Prize winner and UBS Center Advisory Board member Abhijit Banerjee hated school and became an economist by accident. Today, he is overhauling our ideas of life in poverty with field experiments.
This interview by Reto U. Schneider was originally published in German in Swiss NZZ Folio on the topic "Rich and happy?" on 3 January 2023. Translated and edited for layout purposes by the UBS Center.
Mr. Banerjee, you received the Nobel Prize in Economics in 2019 for your poverty research. What did you do with the money?
Nobel laureate Abhijit Banerjee © Nobel Media. Photo: A. Mahmoud; The economist is a professor at the Massachusetts Institute of Technology (MIT) in Cambridge, USA. He grew up in Calcutta as the son of two economists. In 2019, he received the Nobel Prize in Economics with his wife Esther Duflo and Michael Kremer. Banerjee and Duflo were among the founders of the Abdul Latif Jameel Poverty Action Lab at MIT in 2003, which combats poverty based on results from field experiments. (PS)
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Abhijit Banerjee is the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology. In 2003 he co-founded the Abdul Latif Jameel Poverty Action Lab (J-PAL) with Esther Duflo and Sendhil Mullainathan, and he remains one of the Lab’s Directors. Banerjee is a fellow of the National Academy of Sciences, the American Academy of Arts and Sciences and the Econometric Society. He is a winner of the Infosys Prize and co-recipient of the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his groundbreaking work in development economics research.
Abhijit Banerjee is the Ford Foundation International Professor of Economics at the Massachusetts Institute of Technology. In 2003 he co-founded the Abdul Latif Jameel Poverty Action Lab (J-PAL) with Esther Duflo and Sendhil Mullainathan, and he remains one of the Lab’s Directors. Banerjee is a fellow of the National Academy of Sciences, the American Academy of Arts and Sciences and the Econometric Society. He is a winner of the Infosys Prize and co-recipient of the 2019 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his groundbreaking work in development economics research.