Psychology and Development: Applications from Cognitive and Social Psychology

We outline a research agenda for behavioral development economics that seeks to understand the role of psychological channels in: (i) impeding individuals' ability to climb out of poverty, and (ii) shaping the organization of production, functioning of markets, and role of informal institutions in developing countries. We apply a missing markets lens to rationalize why tools, products and services that help individuals overcome their biases will be under-supplied by the market and why behavioral biases can have large impacts in steady state, even among highly experienced agents. We argue that these biases are especially likely to matter for the field of development because core features of poverty---proximity to subsistence, high volatility, market failures, weak formal institutions, and reliance on social ties---amplify the impact of psychological constraints. We organize our review around a core set of psychological constructs: self-control, cognitive constraints, self-beliefs, mental health, and social norms. For each construct, we highlight places where there is only a proof of concept versus evidence of meaningful impacts, and the resultant implications for future research. We also highlight where social capital can be deployed to mitigate the impacts of missing markets. The field research to date has only begun to scratch the surface in document how psychological mechanisms affect behavior and decision-making, and substantial scope remains for future work to determine whether these constraints play a first-order role in shaping poverty.