Publications by Author: Mullainathan%2C%20Sendhil

2010
Mullainathan, Sendhil, and Glenn Loury. 2010. “Communitas: Rethinking Scarcity.” Bloggingheads.tv. Publisher's Version Abstract
Glenn Loury of Brown University and Sendhil Mullainathan of Harvard University discuss new social science thinking about poverty.Link to the New York Times Video
2008
Mullainathan, Sendhil, and Abhijit Banerjee. 2008. “Limited Attention and Income Distribution”. Abstract
Economists have long been interested in the idea that there is a direct circular relation between poverty and low productivity, and not just one that is mediated by market failures, usually in asset markets. The nutrition-based e¢ ciency wage model (Partha Dasgupta and Debraj Ray, 1987) is the canonical example of models where this happens: However it has been variously suggested (see for example T. N. Srinivasan, 1994) that the link from nutrition to productivity and especially the link from productivity to nutrition is too weak to be any more than a small part of the story. Partha Dasgupta himself acknowledges this when he writes "nutrition-productivity construct provides a metaphor... for an economic environment harboring poverty traps."
Presented at the American Economic Association, January 4, 2008.
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Mullainathan, Sendhil, Jeffrey R Brown, Jeffrey R Kling, and Marian V Wrobel. 2008. “Why Don't People Insure Late Life Consumption? A Framing Explanation of the Under-Annuitization Puzzle”. Abstract
According to standard economic models, a risk-averse consumer who faces uncertainty about length-of-life should place a high value on life annuities that provide guaranteed income for life. Yet numerous studies show that few consumers voluntarily annuitize their retirement savings. As public and private pension systems around the world continue the ongoing shift from traditional defined benefit plans, which typically pay benefits for life, to defined contribution structures which rarely require annuitization, retirees find themselves increasingly exposed to longevity risk—the risk of being unable to sustain their consumption should they live longer than average.
Presented at the American Economic Association, January 5, 2008.
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2007
Mullainathan, Sendhil, Michael S Barr, and Eldar Shafir. 2007. “A One-Size-Fits-All Solution”. Publisher's Version Abstract

While the causes of the mortgage crisis are myriad, a central problem was that many borrowers took out loans that they did not understand and could not afford. Brokers and lenders offered loans that looked much less expensive than they really were, because of low initial monthly payments and hidden, costly features.

Families commonly make mistakes in taking out home mortgages because they are misled by broker sales tactics, misunderstand the complicated terms and financial tradeoffs in mortgages, wrongly forecast their own behavior and misperceive their risks of borrowing. How many homeowners really understand how the teaser rate, introductory rate and reset rate relate to the London interbank offered rate plus some specified margin, or can judge whether the prepayment penalty will offset the gains from the teaser rate?

While disclosure alone is unlikely to help, there's another option.

In retirement policy, behavioral research has led Congress to promote “opt out” plans under which employers sign workers up for retirement benefits unless the worker chooses not to participate. This policy has significantly improved people's retirement savings.

Why not have an opt-out home mortgage plan, based, for example, on a 30-year, fixed-rate loan, with sound underwriting and straightforward terms?

Eligible borrowers would be offered a standard mortgage (or set of mortgages) and that's the mortgage they would get—unless they choose to opt out in favor of another option, after honest and comprehensible disclosures from brokers or lenders about the risks of the alternative mortgages. An opt-out mortgage system would mean borrowers would be more likely to get straightforward loans they could understand.

But given lender incentives to hide true costs from borrowers, we need to give the opt-out plan some bite. Under our plan, lenders would have stronger incentives to provide meaningful disclosures to those whom they convince to opt out, because if default occurs when a borrower opts out, the borrower could raise the lack of reasonable disclosure as a defense to bankruptcy or foreclosure. If the court determined that the disclosure would not effectively communicate the key terms and risks of the mortgage to the typical borrower, the court could modify or rescind the loan contract.

This approach would allow lenders to continue to develop new kinds of mortgages, but only when they can explain them clearly to borrowers. To avoid the next mortgage crisis, we should use behavioral insights to make it harder for lenders to put borrowers where they will make predictable and consequential mistakes.

2006
Mullainathan, Sendhil, Joshua Schwartzstein, and Andrei Shleifer. 2006. “Coarse Thinking and Persuasion”. Abstract
We present a model of coarse thinking, in which individuals group situations into categories, and transfer the informational content of a given message from situations in a category where it is useful to those where it is not. The model explains how uninformative messages can be persuasive, particularly in low involvement situations, and how objectively informative messages can be dropped by the persuader without the audience assuming the worst. The model sheds light on product branding, the structure of product attributes, and several puzzling aspects of mutual fund advertising.
Mullainathan, Sendhil, Marianne Bertrand, and Simeon Djankov. 2006. “Obtaining a Driving License in India: An Experimental Approach to Studying Corruption”. Abstract
We conduct two experiments to understand the process of obtaining a driver’s license in India. In the first experiment, we randomly assign license candidates to one of three groups: bonus (offered a financial reward if they could obtain their license fast), lesson (offered free driving lessons upfront), and control. The control group alone illustrates bureaucratic failures: 71% of the license getters in that group avoided the mandated driving test and 62% failed a surprise driving test. The system responds to private needs—there are more license getters in the bonus group—but at a social cost: there are more license getters who cannot drive in the bonus group. The system however also appears to respond to social considerations, as there are more license getters in the lesson group. Large extra-legal payments are made by license getters: those in the control group pay 2.5 times the official fee. More of these extra-legal payments take place in the bonus group. Surprisingly, these extra-legal payments are not direct bribes to bureaucrats but instead payments to agents. In the second experiment, we perform an audit study to better understand the role of agents. The audit shows that agents can provide licenses to individuals even if they cannot drive; but the audit also shows that agents cannot as easily circumvent all other rules. We argue that our findings are most consistent with agents being the channel for corruption in this system. We also report some suggestive evidence that bureaucrats create red tape, possibly to induce more license candidates to use agents.