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How did you end up in such an offbeat, unconventional and unique career?
In 1984, when Sendhil Mullainathan was a child in Los Angeles, his father lost his job as an aerospace engineer at the Rockwell International Corporation.
It was a part of the Reagan administration’s plan to deny non-US citizens jobs in companies that had contracts with the US defense department.
“He just couldn’t work as an aerospace engineer, no matter how skilled he was, because all those firms (that hired aerospace engineers) had some defense contracting,” says Mullainathan, 27, a behavioral economist at the Massachusetts Institute of Technology, and one of the pioneers in his field.
Recalling how much of an impact his father’s job loss had on his life, he says: “It was a frightening moment, because (of him) being unemployed and it was still a foreign country to me. Thinking what could happen. You see homeless people around you. Obviously it wasn’t that bad, but you really feel it.”
He considers his fears of being thrown into a lifestyle of poverty and hardship as being one of the important motivators for him to pursue economics. “In fact, I am not unique in this,” he adds. “When we look at grad students, a third to half of them come into do development economics.”
Can you describe your background?
In his short life Mullainathan has seen a lot of poverty and hard times. Born in Chennai, he grew up in a small village in Tamil Nadu — Kozhiyum — with his mother and paternal grandfather. (He still keeps in touch with his boyhood friends who are sharecroppers and earn meager wages.)
All this while, his father was pursuing his doctoral work in the US. The family was reunited in 1980, when at the age of seven, Mullainathan (he is the only child) and his mother came to the US. During his trips back to India, he is still struck with the general level of poverty in the country.
After losing his job at Rockwell, Mullainathan’s father opened a video store (his mother still runs it) in a poor Hispanic neighborhood of Paramount, CA. Later, his father became a software designer.
“My dad was very worried that the Blockbuster chain would eat us alive,” he recalled. “But Blockbuster requires credit cards and this is a very poor neighborhood, where people do not have credit cards. I remember as kid we would have to go to these bad parts of town, to collect from guys who hadn’t returned their videos. I guess my dad wanted me to see what life is like.”
What did you study?
Mullainathan joined Cornell University’s undergraduate program with the intent of majoring in mathematics and theoretical computer science. There he took an economics class with a professor — Bob Franks, who virtually opened his eyes to another world.
“It made me think that I have seen a lot of social problems and I would like to put my skills to help on those things and see if I can make any progress,” he says.
He joined the Ph D program at Harvard in behavioral economics in 1993 and three years ago was hired by MIT as the Mark Hyman Jr Career Development Assistant Professor of Economics. At that time, the number of behavioral economists was small. Just three years earlier another pioneer in the field, David Laibson (now 34 and on Harvard’s staff), had joined the doctoral program at MIT.
What do behavioral economists do?
Behavioral economists, he says, use mainstream economics theories, but also insist on amendments. They assert that in order to fully comprehend the economy and economic choices people make, one should layer it with the psychology and consider skewed reasoning, self-indulgence, other human weaknesses and strengths.
As an example, he cites a general statement that most economists make about a smart investment strategy — ‘When you hold a portfolio, you should diversify your risk.’
“Behavioral economists say that may be a great advice at the end of the day, but you know what, most people do not diversify their portfolio,” Mullainathan says. “So if you want a nice model of portfolio choice, you need to think about other issues — such as how people go about thinking about risk.”
He gives another example where people take shortcuts in thinking which leads them to make false conclusions. A lot of people would see an African American woman walking with young children and think she is a single mother who is or has been on welfare. That shortcut in thinking helps to explain why African Americans often experience irrational barriers to jobs or good pay.
“So in reality, if you want to understand discrimination, you need to take a step back and think deeper about what is the underlying cognizant structure that allows discrimination to exist,” he says. “Before you could have said, well being black is a signal and it is rational to take that signal. There is an element to that, but behaviorists say you need to go deeper.”
One of the papers for his Ph D degree also included another element of poverty and welfare in the US. With a colleague, Marianne Bertrand, Mullainathan explored whether people who have friends on welfare also tend to follow the same route due to their social network.
“It’s pretty amazing isn’t it?” he says excitedly. “The worst part of my job — and it is one of the things that I didn’t like about my dad’s job — is that having a job that never has well defined boundaries. It means you are never relaxed. And so this is a part of my attempt to define a boundary, which is, I go home, I cannot work. I can’t check e-mails, I can’t even play video games. I barely have any economics books at home. So I just read my novels or watch television.”
How are the career prospects for a behavioral economist?
Mullainathan’s teaching courses have included courses on psychology and economics, corporate finance, and consumption and investment. This year he was awarded the National Bureau of Economic Research fellowship which frees him up from his teaching schedule.
The job market for Ph Ds in economics “very hot” he says. The availability of candidates with Ph Ds in economics has been far outstripped by the number of undergraduate students opting for economic courses.
“The universities can’t pay us higher salaries, but we can compete on these kind of dimensions,” he says, alluding to the fact that three years into his job, he can opt out of not teaching for a year. “My teaching is also relatively low, relative to historical past.”