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ShareHe bears a striking resemblance to Tamil Nadu cricketer Lakshmipathy Balaji. But, that's where the similarity ends.
"The thing I like most in the world is being correct," Sendhil Mullainathan, professor of economics at the Harvard University, says.
A recipient of the prestigious MacArthur Foundation "genius grant," Mullainathan conducts research in the area of behavioural economics, applying it to find solutions to social problems of everyday life. He is a co-founder of the MIT Poverty Action Lab and of the think-tank Ideas42.
He went to the United States at a young age of seven to join his father, who had gone to there for his PhD.
In this freewheeling interview with DNA at the Technology, Entertainment and Design (TED) India conference at the Infosys campus in Mysore, Mullainathan talks about the current financial crisis, why farmers don't like to grow sugarcane in south India, launching a financial product for pregnant women and what happens when the debt of women who sell fruits and vegetables is paid off. Excerpts from the interview:
How do you view the current financial crisis from the behavioural economics angle?
There are many different lenses through which one can view the behavioural angle. One lense that I firmly believe in, but nobody ever believes when I tell them and they never will, is the 'hindsight bias'. Frankly, nobody really saw this coming. Maybe a few people did, but by and large nobody saw it coming. And somehow, as time goes by more and more people feel like yes we saw it coming. That to me is just hindsight bias.
I even have this nagging suspicion that people who saw it coming saw it because they kept saying negative things about it. They are just pessimists. They are saying negative things about everything. It is useful to contrast the current crisis with the Internet bubble. In the Internet bubble a lot of people saw it coming. And one reason we know that is because there was smart money on the other side of the bubble, when the bubble was bursting. They rode it up on its way up and they just got onto the other side before it burst. So those guys obviously saw this coming.
My question is for all the people who saw this crisis coming. How come they did not make money out of it? That is the ultimate sign. If you are a con, if you are a pessimist all the time, you wouldn't make money out of it. For example, right now, my best guess is that the Indian stock market is in a massive bubble. If I am right and the bubble bursts, people could fairly say that you just made that statement, but it was a bland statement. You are not putting any money behind it. And that's true.
You have said in the past that in the south of India, sugarcane is a remarkable cash crop. However, in many areas of the region, the very poor farmers use none or very little of their land to plant sugarcane. One of the reasons they cite relates to self-control. Can you explain that?
Think of somebody who is thinking of planting sugarcane. Sugarcane is a 12-month crop. Even though you can get the financing to plant the seed, you need money to live through these 12 months. The funny thing is that it's hard to take a lumpsum payment and use it wisely for twelve months. You and I have it easy, we have a salary. We don't face a single self-control problem. A farmer rich or poor has a self-control problem. They got to take the lumpsum at the end of 12 months and make sure that they spend it smoothly as opposed to blowing it all at once. And the longer the crop, the more difficult the problem. If you have vegetables, which are a daily crop, you have no self-control problem. It is a little bit like having a daily salary.
The length of the crop makes it harder and harder to plant it. Sugarcane is like a very popular crop that is very difficult. And that is self-control problem of managing such a lumpsum over such a long period.
So many people think about financing the seed to encourage farmers to plant sugarcane. But what we really need to do is create something like a salary that goes with the crop. It can be paid out of the crop payment that is due at the end of the season when the sugarcane is sold. But it needs to look like a salary. It can't be just that the farmer is allowed to borrow lumpsum against the future crop payments because that doesn't solve the self-control problem. What you need is something that says that given that you will be making Rs 30,000 from this crop, why don't we give you a Rs 2,000 a month salary, which is not really a salary, but a loan. At the end of it we will deduct the Rs 24,000 from the Rs 30,000 we expect you to make. So that would fundamentally transform sugarcane and turn it almost into a job.
Does that mean getting people to plant coconut trees should also be a very difficult thing given the time it takes to bear fruit?
Right. I picked sugarcane because it's such a principal crop. We worked in Orissa for a while near a paper mill, and getting people to plant trees was exactly this. Trees are super profitable in this area. But you need 3 to 5 years for the trees to grow. And what do you do in the meanwhile?
In India, 69% of women deliver at home, a reason many experts cite as the source of the country's high maternal mortality rate. Any behavioural aspects to this?
One of the things that we found in a survey that we did is that financing plays a really big role. It is expensive to go to hospitals. Government hospitals, which are meant to be free still charge bribes. So that is a lot of money to get. And this is what we thought was the behavioural puzzle.
