Poor Economics – A Rich Book

Since its inception in 2005, the books chosen for the Financial Times Goldman Sachs Business Book of Year award have largely reflected the perspectives of the sponsoring organizations. The selections of The World Is Flat and China Shakes the World in 2005 and 2006 respectively nodded to the continuing effects of globalization and the need for greater understanding. The winners of the last four years show multiple perspectives on the economic collapse and the continuing effects in the books The Last Tycoons, When Markets Collide, Lords of Finance, and Fault Lines.

2011 marks an unexpected change for the competition. The judging panel this year chose Poor Economics: A Radical Rethinking of The Way To Fight Global Poverty by MIT professors Abhijit Banerjee and Ester Duflo. The book, published by PublicAffairs, looks at the ever present tension around the methods that should be used to provide food, healthcare, and education for the more than 1 billion people around the world who live on less than one dollar day. On one side, aid organizations and governmental bodies most often advocate giving aid to help elevate these pressing problems. On the other side, a growing number of groups have pushed for market based solutions.

Banerjee and Duflo walk a wonderful middle line that dispenses with rhetoric and instead collects data directly from the people affected. Through randomized control trials, experiments are conducted to test the real impact actions have on the choices of individuals and families in these regions. Over and over, the conclusions show balanced approach of both aid and commerce work best.

Poor Economics is a great read for anyone who continues to be fascinated by the research being done into decision-making. The book illuminates how difficult it is to predict customer behavior in any market. In Kenya, the purchase of malaria nets are highly dependent on price, free being the most successful price point. Families offered a second opportunity to buy a net are more likely to buy one if they received the first one at a low price. Friends and neighbors also will buy nets after seeing their friends using a free one. The trouble is that providing malaria nets at very low prices only increases slightly the chance that the next generation will adopt them.

For those who question whether Poor Economics is a business book, they merely need to look at the price elasticity of malaria nets, the power of sampling, and the ever difficult challenge of demonstrating value to customers, even when it is a matter of life and death.

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