Institute for Business in the Global Context

Where the World of Business Meets the World

Move over, Behavioral Economics: Hello, Emotional Finance

by Ignacio Mas, CEME Senior Fellow & Academic Director for the Certificate in Digital Money

Our brains are imperfect calculating machines: who could argue otherwise? There are cognitive biases galore: I get that. So psychology matters: sure.

But I have always had a hard time with run-of-the-mill behavioral economics, which portrays these cognitive biases as deviations from the straight path, as disturbances from some kind of ideal rationality that people need to be somehow brought back (or nudged) towards. Through trickery, if necessary: framing, setting defaults, etc. Your psychology is your problem; we can save you from yourself. If only one could find the mental switch that finally makes you want to care appropriately about the future and save…

The behavioral economics industry is having a field day with financial inclusion, and development more broadly. It comes down to this: how can we help poor people be and act more like us, or at least more like the person we wish we were? This smacks of the kind of paternalism that development economists have always had a hard time escaping. But before rejecting this approach, we need to understand two things: whether it is the case that poor informally employed people are often less rational, and if so, whether this makes them more vulnerable to their own psychology.

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Student Research: Is It a Small World After All? Disney’s China Gamble

by James Kochien (MIB 2017)

“Disneyland is presented as imaginary in order to make us believe that the rest is real.”
-Jean Baudrillard

IMG_1620Quick, what’s the world’s largest media company? If you guessed The Walt Disney Company, you’re wrong – Disney is No. 2, after Google, which hardly seems like a fair comparison. After all, over the past decade Disney has absorbed the Marvel superhero franchises, rebooted Star Wars, and put a new generation of princesses on the toy shelves of the world. All of the global top-5 grossing films in 2016 were Disney properties, totaling over $5 billion in sales. Disney parks saw 140 million visitors in 2015, over two times its nearest competitor. And after a string of expansions that left shareholders unsatisfied, Disney parks opened a new Disneyland in Shanghai, China, to great fanfare. No. 1 or not, Disney dominates the spaces in which it plays.

It is also a company with historical and cultural significance that makes its success somewhat surprising in the globalizing economy. It is founded in an “American” version of family values and prosperity.[i] Its films and parks traffic in a sort of watered-down multiculturalism with America firmly at the center, the proverbial passengers on the ship winding through the plucky, costumed children of “It’s a Small World.” Successful films drive attendance at themed park attractions, and successful attractions nurture new film franchises. It’s a tight synergy that allows Disney to charge a premium for its parks and merchandise.

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What Can India Teach Us About Abolishing High-Value Currency?
by Julie McCarthy

Bhaskar Chakravorti of The Fletcher School at Tufts University says most Europeans don’t rely on the 500 euro bill to conduct legitimate business any more than Singaporeans depend on their country’s S$10,000 bill, which has also been phased out.

“Those denominations are so high that generally, anybody who would have to deal with that value of a transaction would probably use a digital transfer for it,” says Chakravorti.

Read the full piece at NPR

The Less Cash Budget

After the drama of demonetisation, the 2017-18 Union budget has been a decidedly sober affair. The budget speech, one of the longest in history, was short on game-changing ideas. The finance minister didn’t seem terribly perturbed by the gathering storm clouds worldwide: Populist surges in the US and Europe; a strengthening dollar and oil price uncertainties; prospects of trade or religious wars, maybe both. That the IMF has shaved off a full percentage point of India’s anticipated growth rate as the economic penalty for the November cash carnage did not seem to provoke much worry either.

Read the pull op-ed from Dean Chakravorti in The Indian Express

Student Research: Identifying Binding Constraints and Increasing Economic Complexity in Honduras

by Justin Erickson (MALD 2017)

My research is based on identifying economic development policy priorities for Honduras at the country level. Low income countries like Honduras might benefit by strengthening the rule of law, improving infrastructure, or maintaining macroeconomic stability. However, I am interested in what Honduras should do first. What should be the economic development priority of the country right now? E.g. What is currently constraining higher levels of income growth? This is particularly important for Honduras because it is facing a demographic “window of opportunity” in the upcoming years. This will be a period when the ratio of the working age population to total population is projected to reach its peak.

As part of answering my research question I went to Honduras to interview business owners and investors. I focused on businesses in industrial parks that operate in free zones. Free zones provide exporting companies certain tax benefits. I was curious to find out what other benefits industrial parks provide, and what businesses are doing to overcome barriers to development.

I met with businesses in Choloma, San Pedro Sula, and Tamara. I met with a very large clothing manufacturer, a large services-export business park, and a medium size manufacturer, respectively. I also met with the Honduran National Port Authority from Puerto Cortes, the largest port in the region, as well as professors at the Technical University of Honduras (UTH).

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An Alternative to ‘Alternative Facts’: Prof. Klein, Murrow Center Launch EconoFact

Facts, as John Adams once said, as stubborn things. Even in what seems like a “post-truth” world, or especially then, they matter.

In an era when political polarization drives the perception of truth and falsehoods are spun as “alternative facts,” Fletcher School professor and renowned economist Michael Klein wanted to provide, well, an alternative. That’s how he, along with Fletcher’s Edward R. Murrow Center for a Digital World,  came to create  EconoFact, a non-partisan publication presenting the facts behind national debates on economic and social policies, delivered with analysis from a network of 30 top academic economists. The website, launched on January 22, provides analysis from both sides of the aisle, written in the form of short, accessible, jargon-free memos, aiming to put the cart back in its proper place behind the horse — you get facts before being overwhelmed with contentious opinions.

“We want to emphasize that you can choose your own opinions, but you cannot choose your own facts,” Klein wrote in an article for The Hill announcing the launch of EconoFact.

Some of the first pieces published — written by Klein, fellow Fletcher School professor Joel Trachtman, and other economists from leading universities such as Harvard and Georgetown — focus on the proposed border wall, currency manipulation, the trade deficit, and US manufacturing. Forthcoming memos will look at economic growth, financial regulation, corruption, immigration, and more.

The project’s network has been expanding since Klein began assembling it in the weeks following the 2016 Election, as more and more economists are alarmed by how the angry divisions between Republicans and Democrats, globalists and nationalists, and the many groups in between that threaten to undermine rational policy-making. EconoFact also has the enthusiastic support of the Murrow Center at Fletcher. The Center’s Director, former journalist and Fletcher professor Edward Schumacher-Matos, serves as Executive Editor alongside Klein.

“The emotions and distrust are such today that many of us often find ourselves sticking to our instinctual biases, ignoring the data,” Schumacher-Matos said. “But Americans are overwhelmingly people of goodwill, and want to have a rational debate.”

The memos are meant for policymakers, journalists, commentators, and, most importantly, citizens seeking to become better informed.

By grounding the debate in the facts, EconoFact hopes to let truth lay the groundwork and allow opinions and recommendations rise from there. To emphasize the explanatory nature of EconoFact, posts follow a memo format, with the first two sections presenting the issue and relevant facts, often accompanied by charts or graphics. Only at the end of each post does the economist draw a conclusion or make a policy recommendation. The facts help inform the beliefs, rather than beliefs forming the facts.

“We need a well-informed electorate to demand reasonable policies and to hold accountable those who put in place policies that fail,” Klein wrote. “[And] we believe that … the American public too will want to become more informed as events unfold.”

Read more at EconoFact.org

A New Abnormal

A little over two months has passed since the Narendra Modi government’s ambush on its own currency. In keeping with the unexpected nature of its launch, the manoeuvre has had some unexpected consequences. There are at least three ways in which the November 8 experiment has upended conventional wisdom.

Read the full piece from Dean Chakravorti in The Indian Express

Professor Moghalu to Address Swiss Business Leaders

Fletcher School Professor Kingsley Moghalu will deliver the keynote address at the 2017 edition of the prestigious Le Rendez-vous du Commerce International (International Business Conference) on January 10, 2017 at the Olympic Museum in Lausanne, Switzerland. The high-level annual conference is jointly organized by the Swiss bank Credit Suisse and the Swiss state corporations Swiss Export Risk Insurance (SERV) and Switzerland Global Enterprise (S-GE). Professor Moghalu will speak on the topic “Outlook Africa 2017: How to Cope with Weak Commodity Prices”.

The conference, the fifth since its inception in 2013, will be attended by 200 chief executives of major Swiss international companies, and will be moderated by the Swiss television anchor Olivier Dominik of RadioTelevision Suisse (RTS). Keynote speakers at previous annual editions of the conference include Yannis Varoufakis, former Minister of Finance of Greece, Manuel Barroso, former President of the European Commission and Dominique de Villepin, former Prime Minister of France.

Dr. Moghalu served as Deputy Governor of the Central Bank of Nigeria from 2009 to 2014 prior to joining the Fletcher School faculty, where he is Professor of International Business and Public Policy.

Read more on This Day Live

India’s Botched War on Cash

[In the wake of demonetization], retail and wholesale markets have stalled around the country. Supply chain transactions, real estate deals, and even weddings and funerals have been frozen. Consumers are coping with lines that are frustrating even for Indians used to standing in lines or waiting for basic services. People up and down the income spectrum are dealing with changing cash withdrawal policies and empty ATMs. The nation’s status as the world’s fastest-growing big economy has been severely imperiled and its currency risks being further devalued, a situation made worse by prospects of a strengthening dollar after the U.S. election.

Sounds bad, right? But there is a question that hasn’t been asked: Is there a digital upside to this crisis?

Read the full piece from Dean Chakravorti in the Harvard Business Review

“Our Digital Planet: Technology’s Global Impact on Lives and Livelihoods”

Dean Bhaskar Chakravorti spoke on the Digital Planet as part of Tufts University’s “Tufts Talks NYC” in December 2016.

View the video on YouTube

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