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Nepalese tribesmen falling out of trees

December 18, 2013

An excellent paper by Kaushik Basu argues that randomised controlled trials (RCTs) in development economics can’t establish causality:

To be aware of our own minds’ propensities, it is at times useful to take cognizance of the very different beliefs found in other cultures, which those cultures consider perfectly reasonable. The Gurung tribesmen of Nepal spend a lot of time climbing dangerously high trees to gather honey. When the French photographer, Eric Valli, who worked extensively among the Gurung, asked them if they do not ever fall down from their high perch, they replied: “Yes, you fall when your life is over.” (National Geographic, vol. 193, no. 6, June 1998, p.92)

I quite like Basu’s conclusion, which is that whilst RCTs don’t establish causality they may describe a situation well. We should pay attention to them but we should also use our intuition.

What I am arguing is that by bringing … intuition and reason together, we can greatly improve our ability to make policies. Is my intuition consistent with the evidence we have and the other things I already know? Is it consistent with the other intuitive beliefs I hold? Reasoned intuition is intuition that has been subjected to this kind of interrogation.

In this and the next paragraph he more or less describes what I do when I write about trade policy in developing countries:

Empirical studies, no matter how carefully done, cannot in themselves lead us to particular policies. Going from evidence, data, and statistics to policy will invariably entail a leap of imagination.

Another clever argument:

Dollar, Kleineberg and Kraay (2013) have recently shown, using a remarkably comprehensive data set, spanning multiple countries and several decades, that the bulk of poverty reduction that the world has seen in the past was due to overall GDP growth. Intuition then prompts us to propose that we should therefore rely on growth rather than specially designed market interventions to battle poverty. For the untutored, the growth v. poverty debate is an emotive one and this observation quickly gathers support among those who have a predilection to leave it all to the market. Without going into this larger debate here… let me simply point to an obvious mistake that leads us to make this policy conclusion from this robust empirical finding. The fact that 75% of the drop in poverty in the past occurred because of growth in no way shows that growth is more effective in eradicating poverty than say a new conditional cash transfer program. The mistake in making that deduction would be the same as someone studying infections in the 1930s asserting that we should rely on non-penicillin medicines because past data shows that 99% of all cures were because of non-penicillin drugs. This ignores the fact that penicillin was discovered in 1928 and so the lack of evidence of the success of penicillin is not a sign of penicillin not working but of penicillin not existing.

Basu adds on page 20 that the mistake about assuming that growth reduces poverty would be the same as someone pointing out that the private sector creates jobs because past data show that 80% of jobs were created by the private sector. “If this logic were correct, we would also have to accept the logic of an economist in Soviet Russia in 1980 arguing that we have to rely on the state for job creation because past data show that 90% of all jobs were created by the state.”

Basu concludes:

What human beings know comes from many sources, and to deem only one method valid and all others invalid is to slow the process of knowledge acquisition. The catholicity of methods currently used—from anthropological notes, analysis of large data sets, everyday experience and randomized trials—all have a role to play in this enterprise.

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