This interview with Michal Bauer is the second in the series about new CERGE-EI faculty. Each of them brings a different set of attributes to his new position and has pursued a different path toward an academic career. Michal has been recently awarded the Otto Wichterle Award for being an exceptionally outstanding and promising young scientist at the Academy of Sciences of the Czech Republic and for his remarkable contributions to the advancement of scientific knowledge in a given area of science. His article with Julia Julie Chytilová and Jonathan Morduch on “Behavioral Foundations of Microcredit: Experimental and Survey Evidence from Rural India” is being published in the American Economic Review.
Michal Bauer: Using economic experiments to understand poverty
Michal Bauer has been a research fellow at the Economics Institute of the Academy of Sciences of the Czech Republic since 2010. Other affiliations include an Assistant Professor at the Institute of Economic Studies, Charles University in Prague (where he earned his Ph.D. degree in 2009) and IZA Research Fellow. In 2007-2008, he was a Fulbright visiting scholar at New York University.
Why did you decide to choose academic career as opposed to business, politics or other domain?
It was partly a coincidence that I decided on an academic career. In 2005 I and my partner, Julie Chytilová, decided to do volunteer work as teachers of English and economics in rural areas of Southern Uganda. While having a unique opportunity to be part of the local microcosm, we realized that there are many puzzling and open questions that one could explore using econ toolbox. This motivated us to organize with the help of local NGO our first field project in this country.
The project focused on determinants of time discounting (patience), because the ability to wait is an important component of many fundamental choices, such as sending kids to school, saving, or investing in a new fertilizer. The Ugandan project was quite successful, at least I felt it was so, and I slowly realized that a research work could be a way to be useful in helping less fortunate parts of the world. Plus, the academic job provides greater flexibility compared to other types of jobs.
Now being a professor, how do you balance the “big three:” teaching, research, and service (administrative duties and advising) with your personal interests?
Research has a priority for me at this point. Advising can also be fun, especially with students who have high aspirations and are willing to work hard on some related topic. It is the same with teaching. It depends on the type of course and students. Peter Katuščák and I had a course in experimental economics during the Spring term 2011 and it was a pleasure to have students who were interested in topics, curious, asking questions. Then, it is good to be involved in all three types of activities and the tradeoff does not arise. But of course, that’s not always the case.
Yes, students’ interests and participation shape Professors’ preferences to some extent. In relations with students do you prefer to treat them as colleagues or to keep certain distance?
I prefer to have a pretty equal approach to students. This is something that I liked in US.
Turning to research, having completed your PhD at Charles University in 2009, what was your dissertation topic? Could you tell us about the key results of your work?
In general, I am interested in applied development microeconomics and behavioral economics. In the thesis I mostly focused on time discounting: on the formation of this preference and how it affects economic choices. In one of the papers, we study the effects of education on patience. That’s the project from Uganda. We find that more educated people make more patient choices in experiments.
From this correlation, however, it is not clear what causes what: whether more patient people go to school more because it is an investment with delayed benefits, a standard explanation, or whether the education process makes people more patient, perhaps because it helps them to think and imagine future gratification better. This distinction is critical for drawing policy implications. The main contribution of this paper is that we show that lack of education causes impatience, which further underlines the role of education in economic development.
You have really unique research experience. Let’s talk in more details about the other projects, which you have run in India and Georgia. What is the most interesting for you about these countries? What are the most remarkable results of the projects you have discovered?
New theories in behavioral economics propose the idea that people think differently about choices that matter today compared to choices that will bear out in the future (have present-biased preferences). These preferences make them prone to under-save relative to their plans and demand a commitment to achieve their goals. In a joint project with Julie Chytilová and Jonathan Morduch we wanted to understand financial decision-making of the poor and in particular we wanted to test how present-biased preferences are related to success of microcredit. Microcredit is a financial tool that has provided access to loans for millions of poor people worldwide.
We find that women with self-control difficulties are more likely to borrow and to do so especially via microcredit. The results suggest that a large proportion of these women demand commitment to accumulate usefully large sums of money and that specific features of the microcredit contract such as regular and frequent repayments during group meetings help them to achieve their goals. Thus, some clients may demand microcredit because they want to save but do not have suitable savings product at hand. Based on these findings, we speculate that creating more convenient and reliable savings mechanisms could help people who value microcredit as a commitment device to better manage their money.
And what is about Georgia? How did you come up with an idea to go there?
Shortly after the 2008 war over South Ossetia Randy Filer asked me whether I would like to teach an intensive course in development economics at International School of Economics at Tbilisi University (ISET). This school provides a US-style MA program. The unfortunate circumstances of the country also inspired us (joint with J. Chytilová, A. Cassar and J. Henrich) to study whether warfare experience increases selfishness or group cooperation. There are interesting evolutionary theories dating back to Darwin which hypothesize that the history of intergroup conflict may have affected human psychology in a way that a threat posed by another group increases ingroup prosociality as a response. The experimental economics has some useful tools to measure social preferences and group identity. These are based on allocation of rewards between a decision-maker and someone else. We decided to implement these methods among children who were, to different degrees, affected by war and exposed to violence. We found that children who were more exposed to war are less selfish, more inequality-averse and feel a stronger sense of their group identity. In other words, they become more “groupish.”
We have recently implemented similar experiments in Sierra Leone, a country that was plagued by a brutal civil war ten years back. It’s quite remarkable that we are finding very similar effects among young people who experience war-related related violence during their childhood and adolescence. These findings are potentially important for development economists and practitioners interested in post-conflict reconstruction.
Your research is based on using experimental economics – what are the advantages of this particular technique?
This is a question for a longer conversation. There are essentially two distinct ways in which the experimental approach can be useful in applied work in developing countries: it can provide more precise measures of motivations of behavior or it can help to identify causal effects of various kinds of policies using randomized control trials. In my work, I mostly use the first approach. Here is an example. Economists typically rely on information collected from surveys. This allows them to observe whether, let’s say, people demand microcredit. But without experiments complementing these surveys it is extremely hard to disentangle motivations for taking up microcredit.
For example, one reason why microcredit is so popular is that many poor people are patient and want to use microcredit for investing in an entrepreneurial activity that may in turn help them to get out of poverty. That’s essentially the story promoted by Muhammad Yunus, the recent Nobel Prize winner, which creates a lot of enthusiasm in the microcredit movement. Another possibility is that mainly impatient people demand microcredit and use it for consumption. That’s a more pessimistic view, suggesting a possibility of debt trap. Yet another possibility is that mainly people who are present-biased — patient only in their plans — demand it as a commitment saving device.
To measure time discounting, people are typically given a set of choices between an earlier reward and higher delayed rewards. These measures can be used as predictors of behavior, such as taking up microcredit. My point is that unless one has a good measure of time preference at hand, it’s hard to disentangle these motivations and theories, which may have completely different policy implications.
Tetyana Holets, 2nd year student