Want to be wealthy? Try therapy

by Tyler Cowen

Economists are used to the idea that intervening in concrete ways — spending on development projects, for example, or on social services — can improve outcomes. But what about psychological interventions? Is it possible to make people wealthier simply by helping them feel better? What is the connection between psychotherapy, or pharmaceutical treatments, and wealth accumulation?

This is a new branch of economic research, and the results are by no means definitive. Yet these investigations are especially important for development economics. In poor countries, people may be especially likely to suffer from trauma, given circumstances of war and violence, food scarcity or natural disasters. And purely psychological interventions have promise as modest tools for economic self-improvement.

One study of Ethiopia looked at the psychological impact of raising aspirations. The researchers created a randomized control trial, showing one group of people short films about business and entrepreneurial success in the community. Six months later, those who had seen the films had worked more, saved more and invested more in education, relative to those who had not seen the films. Even five years later, households that had seen the films had accumulated more wealth, and their children had on average 0.43 more years of education, which typically is considered an impressive effect.

Score one for the nudges.

In Mexico, an aspirational video shown to female microenterprise owners led to improvements in business performance. This study was again a randomized control trial.

Sufficiently intense versions of these treatments are likely to be effective. Some cultures have long been seen as especially entrepreneurial, for instance the overseas Chinese and Lebanese communities around the world. They are not watching videos, but they receive a concentrated and steady dose of cultural influences, ranging from parental lectures to peer pressure to aspirational movies, songs and TV. The question is not whether cultural conditioning works — it can — but rather how effective a small dose can be.

Sometimes psychological interventions produce only temporary effects. One research design taught self-efficacy lessons to women in India. The likelihood of employment rose 32% in the short run — but within a year the effects had dissipated.

What about psychotherapy, which is so prominent in much of the Western world? This question is hard to answer in part because cost and regulation make it difficult to perform randomized control trials, the research gold standard, in wealthier countries such as the U.S. Nonetheless, there are some encouraging results.

One survey of lower- and middle-income countries found 39 studies that identified psychotherapeutic treatments could boost work outcomes, including employment, in randomized control trials. Treating schizophrenia appears to have an especially large effect. In Pakistan, mental-health treatments for perinatally depressed mothers led to significant positive gains for the children. A study in Niger found that both psychosocial treatments and cash transfers could improve outcomes for recipients. In another study, however, in Kenya, cash transfers were cheaper and more effective than psychological treatments, though the latter did show some gains.

What about antidepressants? Economists are just beginning to collect evidence. One study, performed in India, found that antidepressants combined with therapy and livelihood assistance (essentially job training and counseling) had significant positive effects for the women treated. Depression rates were lower, and that led to greater investment in the women’s children and reduced the incidence of “negative shocks” in the women’s lives.

None of these results demonstrates that there is a “psychology of poverty” to be overcome by external interventions. They do imply, however, that poorer economies can make marginal gains by investing in what might be called psychological and psychotherapeutic infrastructure. These research designs can be applied to hundreds or thousands of people, but it will never be easy to use them for entire citizenries. Nonetheless, countries can make therapeutic help more accessible and affordable, and foster a culture in which people feel comfortable seeking it out.

Culture matters for economic development, and this is one small part of the puzzle. A straightforward aspirational ethos helps, and smaller-scale cultural interventions can move people marginally in that direction.

What about the U.S.? Is it so awash in psychotherapeutic ideas, aspirational videos and antidepressants that marginal increases won’t make much of a difference? It’s hard to say. And though the research is just beginning, maybe it’s not too soon to say that — from an economic standpoint, at least — more openness to psychological and pharmaceutical interventions is better than less.

Tyler Cowen is a Bloomberg Opinion columnist, a professor of economics at George Mason University and host of the Marginal Revolution blog.