villagefinance

A number of mobile banking experts have been envisioning the ‘cash-less village’, in which villagers pay for groceries and services on their mobile phones. But, in his book Predictably Irrational, Dan Ariely, a behavioural economist at Duke University, shows how the degree of abstraction of our currency can lead us to experience greater and greater distance from our ethical values, increasing moral hazard.

With colleagues Nina Mazar and On Amir, Ariely gave 450 MIT students a 5-minute test, and paid them fifty cents for each correct answer. The first group of 150 students (the control) submitted the test to the experimenter and received payment based on performance. On average they answered 3.5 questions out of 20 correctly.

A second group were told to just report their results and collect their cash without submitting the test. They reported answering 6.2 questions correctly. The difference in performance over the first group is statistically large and significant, and must have resulted mainly from cheating.

The third group received the same instructions as the second group, except that they were paid in tokens, quickly redeemable for cash by walking 12 feet to another research desk. Faced with tokens instead of cash, this group reported answering an average of 9.4 questions correctly!

Ariely’s experiment raises intriguing questions about mobile banking. Illiterate villagers live in the original version of a ‘cash-less’ society. They see value in cows, rice, earrings and gold. Many villagers are still very sceptical about cash. Wise elders can tell many tales of the ‘moral hazards’ caused by these paper promises. Will villagers view ‘cashless payments’ as abstract promises of value twice removed? What trust issues are we opening up, and how are we going to deal with them?

Confidence in paper value is a behavioural change that took generations in America. To fight poverty requires building paper value, both as an end in itself and as a platform on which digital value can safely be built.