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Education interventions improve economic rationality

October 07, 2018

There has been sustained interest across behavioral and social sciences - including psychology, economics and education - in the question of whether people are born to be rational decision makers or if rationality can be enhanced through education.

A new study conducted by Prof. Hyuncheol Bryant Kim (Department of Policy Analysis and Management at Cornell University), Prof. Syngjoo Choi (Department of Economics at Seoul National University), Prof. Booyuel Kim (KDI School of Public Policy and Management), and Prof. Cristian Pop-Eleches (School of International and Public Affairs at Columbia University) set out to answer this question and found that education can be leveraged as a tool to help enhance an individual's economic decision-making quality, or economic rationality.

"Using a randomized controlled trial of education support and laboratory experiments that mimic real-life examples, we established causal evidence that an education intervention increases not only educational outcomes but also economic rationality in terms of measuring how consistently people make decisions to seek their economic goals." The research team said.

The research team examined this hypothesis by participating in an NGO-organized randomized controlled trial of education support in Malawi, which provided financial support for education in a sample of close to 3,000 female 9th and 10th graders.

The researchers conducted a long-term follow-up survey that measured educational outcomes and implemented financially incentivized laboratory experiments that measure decision making quality based on consistency with utility maximization, an individual's attempt to obtain the greatest value possible from a decision, as the criterion for economic rationality.

"We found that those who took part in the education intervention had higher scores of economic rationality, suggesting that education is a tool for enhancing an individual's economic decision-making quality," the research team said.

"While we know that schooling has been shown in previous work to have positive effects on a wide range of outcomes, such as income and health, our work provides evidence of potentially additional benefits of education coming from improvements in people's decision-making abilities," the research team said.

Rationality in human choices has been a cornerstone assumption in traditional economic analysis. However, mounting evidence shows that people tend to make systematic errors in judgment and decision-making and that there is a high level of diversity in the extent to which rationality is limited across decisions and individuals.

The research team point out that most other research on improving the quality of decision-making target the reduction of decision biases in particular contexts of economic activities. For example, behavioral economists have urged governments and policy makers to intervene in markets by restructuring choice environments without restraining people's freedom of choice.

A popular idea representing this position within behavioral economics are the so-called "nudges" proposed by Nobel Prize Winner Richard Thaler. Nudges are means of helping people make better choices that are often behaviorally tailored in particular economic contexts.

"We take a different stand: proper policy tools can enhance general capabilities of decision making," the research team said. "Education can better equip people for high-quality decision making for their lives."

say that this is something policy-makers can leverage to improve the lives within countries around the world.

"Governments must never neglect investments in human capital of their citizens," they said, noting that Malawi is ranked one of the lowest in the world in terms of human capital. "In addition, this evidence provides an additional rationale for investment in education in resource constraint settings such as Malawi and other developing nations."
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Seoul National University

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