Nobel Laureate Esther Duflo: The Changing Face of Economics
Niklas Elmehed | © Nobel Media.
The latest recipient of the Nobel Prize in Economic Sciences, Esther Duflo, made a monumental impact in the field of economics by being both the youngest person to ever receive the award and only the second woman to do so. She, along with Abhijit Banerjee and Michael Kremer, was recognized for their “experimental approach in alleviating poverty” which included Duflo’s radical use of Randomized Controlled Trials (RCTs) in economic field experiments.
Esther Duflo’s impressive resume includes being the youngest faculty member to hold tenure at MIT, co-directing J-PAL, a leading anti-poverty think tank, and collaborating with local governments as well as NGOs. Through J-PAL, her research benefited over 5 million Indian school children by establishing a clear link between remedial tutoring and educational outcomes in marginalized communities.
The area of her research that was recognized by the Nobel Prize is a modern take of field research through RCTs, which are implemented to find causal relationships within larger societal issues like government and individual behavior that perpetuate the cycle of poverty. Before Duflo and her fellow co-recipients, the use of RCTs and its ability to test for causality, while holding all other factors equal (ceteris paribus effect), was restricted to studies in medicine and science; now it is being used all over the world to answer complex societal questions.
Her approach is to take large overarching issues and deconstruct them to address the problems as scientifically as possible. As Duflo puts it, “What we try to do in our work is unpack the problems one by one to better understand the reasons for particular problems. What works, what doesn’t work and why.” While in the past, economists have focused on studying trends from large scale data composites, Duflo’s RCTs enables economists to implement control and test groups to uncover relationships. According to Duflo, the previous model of economic research makes determining multi-faceted questions, like what the true impact of foreign aid is in eradicating global poverty, nearly impossible. This is because some questions are simply too complex to be accurately captured in one swooping analysis. Therefore, her approach through RCTs is to break the overarching question of the effectiveness of foreign aid into more manageable problems by isolating certain conditions and maintaining control groups in order to tease out the direct impacts of certain foreign aid policies.
A key example that highlights RCT’s ability to tease out causal effects is demonstrated by Duflo’s research on the effects of subsidized handouts on eradicating malaria. Policymakers in Kenya believed that handouts may be less effective if they were given out for free because it would foster dependence on them or people would misuse free nets and use them for fishing instead. These beliefs and uncertainty of how to optimize the use of bed nets deterred the eradication of malaria. Thus, Duflo’s ability to determine the direct effect of subsidies through RCTs was instrumental in malaria elimination. Specifically, this experiment was conducted in multiple villages in Kenya by randomly giving a third of the villages bed net handouts, a third subsidies for bed nets, and the final third no assistance at all. This model of maintaining a randomly assigned control group, in this case, the third group with no subsidy or handout, allowed Duflo to identify any changes in behavior as a direct result of the subsidy.
The experiment demonstrated that, regardless of how much, any reduction in the price of bed nets leads to an increase in the use of bed nets. Follow-up RCTs also proved that if one were to have received a free bed net they were more likely to purchase one in the future. Hence, her experiment using RCTs disproved a long-held claim in development that giving people handouts makes people dependent on them, but rather as Duflo puts it, “people just get used to bed nets.”
While this new implementation of RCTs may seem not so novel of a concept, as it has been a popular method of studying the effects of medical treatments, it does have astronomical potential to uncover critical relationships that until now were only speculated upon in economics. As Duflo remarks in her TedTalk:
“In the 20th century, randomized, controlled trials have revolutionized medicine by allowing us to distinguish between drugs that work and drugs that don't work. And you can do the same randomized, controlled trial for social policy. You can put social innovation to the same rigorous, scientific tests that we use for drugs.”
RCTs take the guesswork out of policymaking and allow for more direct, effective impacts. The ingenuity of Duflo’s work is that she is able to deconstruct highly complex problems into a small collection of feasible ones. Through this method, she has determined key relationships on the effects of welfare, vaccination rates and effectiveness of education in developing nations.
Beyond her revolutionary use of RCTs, Duflo, as a relatively young female economist, is also sending shockwaves in her field as she advocates for female and minority representation in economics–a predominantly white and masculine subject. In her acceptance of the Nobel Prize, she expressed how there was a lack of female recognition in economics, saying how “that has to change” although it is “something the profession is beginning to reckon with.”
Recognizing that it is more difficult for an individual to be acknowledged for her work if the people evaluating her have not been exposed to perspectives like hers, Duflo’s impact as the recipient of this prize is no small deal.
In fact Duflo’s own research underscores just how powerful exposure and role modelling of female figures has on “changing perceptions and giving hope that can have an impact on reality.” Her results found that villages in rural India with long-serving female leaders, the gender gap in teenage education had virtually disappeared, as more girls set higher standards for themselves because they had seen that it was possible for them to do so.
Similarly, she wants her role as the second woman to win the highest prize in economics, to serve as an encouragement for many others to come join her. Duflo has said that she believes that there is an underrepresentation of women and minorities in economics, especially in the development sector. She emphasized that this means that the unique sets of issues and interests of minorities are not being studied–something she very strongly believes to be problematic. Therefore, the fact that a member of a historically underrepresented group in economics is gaining critical acclaim for her work by being recognized with the most prestigious prize in the field, is opening doors for other underrepresented groups by highlighting their potential to impact the face of economics.