Many decisions are made under uncertainty, and people are likely to form subjective beliefs (expectations) about the probabilities of events that are relevant for their decisions. Preferences and expectations are then combined to reach a choice. Typically, researchers only observe the final outcomes and have data on choices. This leaves them with a basic identification problem when making inference on the decision-making process as many combinations of preferences and expectations can lead to the same observed choice. One way to address this problem is to ask decision-makers directly about their subjective expectations. This is particularly relevant in developing countries where people face even more uncertainty than in developed countries.
Delavande’s earlier work shows that it is feasible and extremely useful to ask probabilistic expectations from survey respondents in developing countries to better understand their decision-making. Within MiSoC, Delavande pursued further important methodological developments on how best to ask expectations in developing countries (e.g., Delavande et al. 2017) and with important methodological applications (HIV in sub-Saharan Africa, education in Pakistan, early childhood development in Pakistan).
The risk of HIV infection is one of the most important examples of this, and recent MiSoC research has made an important contribution to our understanding of the role of HIV policy. Delavande and Kohler (2016), published in the prestigious Review of Economics Studies (one of the “top 5” journals in Economics), implemented new methods for measuring individuals’ expectations about the impact of HIV on survival, own and partners’ HIV status and the risk of transmission to study risky sexual behaviour in Malawi. Analysis of the accuracy of these expectations showed that information policies would be beneficial in term of reducing risky sexual behaviour if focused on mortality risks, but not if focused on transmission risk.
Another important substantive application has been related to educational choice. By collecting data on expectations on the return to a degree from youth in Pakistan, Delavande and Zafar (2019, published in the Journal of Political Economy) evaluated the role of future earnings, non-pecuniary outcomes and financial constraints in the choice of a university (between religious seminaries, Islamic universities or liberal universities). They find that future earnings and employment prospects play a small (but statistically significant) role. However, non-pecuniary outcomes, such as the school’s ideology, are the major determinants. Policy simulations suggest that implementing policies relaxing financial constraints would lead to large welfare gains and substantial switching in university choice.