:Author:   John Powers
:Date:     Thu, 27 Aug 2009 11:28:28 PDT

I'm not sure what's a good label for talking about motivations and money, perhaps economic psychology, or the preferred term behavioral economics. But there is surprisingly little study in this direction.

Something I find quite interesting is how people communicate and the sources of misunderstanding.  Last night a friend linked to a FT article `What the World's Poorest Can Teach Us About Money Management`_.  One of the points in it is we think $1 a day and think it's really $1 everyday, but the reality is chunks of money and then no money.  The article reminded me of `Paul Polak`_ and his 12 steps, the second one is: Talk to people and listen.  In the video to illustrate this point he tells about how development economists were appalled by the spare use of fertilizer in Bangaldesh.  When a farmer was asked why he answered: "That's easy every ten years or so there's a big flood.  We only apply as much fertilizer that we can afford to loose in a ten year period."

Part of the miscommunication is a presumption on the part of moneyed people that poor people don't behave rationally.  But the reasons for the behavior of poor people can make lots of sense from their perspective.  There must be an attempt towards understanding.

Recently there's been much attention to results of randomized control trials (RCT) of microfinance.  The results seem to suggest that microfinance doesn't work. `Duncan Green`_ is a development economist for Oxfam and wrote a book "From Poverty to Power."  His recent insights about these studies are very smart.  The bottom line is we still don't know very much, and we must study areas that get to the psychology of decision making, understanding that decisions are made in particular contexts.  Assuming we know what the contexts are without trying to really know is what so often leads to economic folly.

The Edge `Master Class`_ actually A Short Course in Behavioral Economics demonstrates what it might look like to build economic systems of aid based on understanding rather than presumptions.

Local currencies, or alternative money, is a fascinating subject.  Back at Onet there were some really high-level discussions about it.  One big generalization--probably foolish--I come away with from such discussions is: Nobody really knows what money is.  `open money`_ is a project some of our old friends are moving on with.  I very much like their construct that open money is "a wealth-acknowledgment information system."  It seems to me that a big part of moving from poverty to power is to acknowledge wealth.  Poor people often have much better understanding of wealth than those of us with money do.  I feel sure that alternative currencies can be a way to help people all over get a truer picture of wealth and poverty.

.. _`What the World's Poorest Can Teach Us About Money Management`: http://www.foreignpolicy.com/articles/2009/08/21/what_the_worlds_poorest_can_teach_us_about_money_management

.. _`Paul Polak`: http://paulpolak.com/

.. _`Duncan Green`: http://www.oxfamblogs.org/fp2p/

.. _`Master Class`: http://www.edge.org/3rd_culture/thaler_sendhil08/thaler_sendhil_index.html

.. _`open money`: http://openmoney.info/