Patience, Genatsvale!

By Nino Doghonadze, Karine Torosyan and Norberto Pignatti

The ISET Economist, a blog about economics in Georgia and the South Caucasus by the International School of Economics at TSU (ISET)

One of the first things tourists in Georgia notice is how crazy that drive from the airport to the city is. Jumping red lights, breaking rules to take over the jeep in front, the Georgian taxi driver risks his (and not only his!) life to deliver his passenger to the destination. As a distraction from the dangerous ride, the driver might offer the famous “dzhigit” (a brave equestrian) joke: a dzhigit passes on red light, but stops on green – in case another dzhigit is crossing the road.

Dzhigit-style driving is not the only example of Georgians acting in a shortsighted manner. Prevalence of early marriages, young age at first birth, poor business ethics and low saving rates are some of the most obvious manifestations of Georgians underestimating the importance of farsighted behavior.

Earlier on this blog, Florian Biermann and Robizon Khubulashvili hypothesized that Georgians are very impatient. New evidence by Thomas Dohmen and his colleagues supports this claim by providing patience measures for 76 countries by asking interviewees to choose between a certain amount of money today and a larger amount one year later. The amounts were set to imply the same purchasing power in each country. Georgia turns out to be the #3 most impatient country, after Rwanda and Nicaragua!

Well, then, what’s wrong with being impatient? Isn’t it just part of the rich Georgian culture, something that distinguishes Georgian temperament from other nationalities? Indeed it does, but not always in a good way…

PATIENCE MATTERS!

Dohmen et al. offer a detailed discussion of how patience ultimately fuels growth and development by encouraging the accumulation of human and physical capital, investment in new technology and design of more future-oriented institutions. Consequently, the logic goes, economies dominated by patient individuals grow faster.

This is a credible theoretical argument, but do we really observe this complicated relationship in practice? The answer is yes. The same paper, based on the data from 76 countries and 80 000 observations, posits that 40% of growth in national wealth might be due to patience. Moreover, patience strongly correlates with education and savings both at the aggregate (comparing countries) and at the individual (comparing individuals within the same country) level.

Given the key role of patience in economic development, it is essential to understand what can be done to foster farsighted behavior in the population. There is no point in alleviating the symptoms of an illness without identifying and tackling its root causes.

DRIVERS OF SHORTSIGHTEDNESS

William Ascher, the author of “Bringing in the Future: Strategies for Farsightedness and Sustainability in Developing Countries”, identifies four broad drivers of shortsighted behavior: the time preference (or “pure” impatience), selfishness, analytic limits, and vulnerability.

In general, people have a preference for benefits to come earlier rather than later and for negatives or costs to come later rather than earlier. This happens because the present value of future benefits and costs is discounted to some degree. The higher this degree of discounting (or, the “discount rate”), the lower value one attaches to future costs and benefits. “Pure” impatience is not something only peculiar to Georgians, it is a personality trait present in all humans. But, of course, time preferences might differ across cultures or geographic areas due to context or historical reasons. For example, in places where food was difficult to produce and/or store (for example, due to hot climate, frequent droughts or wars), consuming today rather than tomorrow might have been a better survival strategy. So “impatience” genes would be more likely to be passed to future generations, leading to selection in favor of more impatient people.

Selfishness is another driver of shortsightedness as illustrated by the famous phrase by Louis XV, “after me, let the deluge come” (“Après moi le déluge”). According to some historians, having indulged in his hobbies of hunting and womanizing, Louis XV “accelerated the general decline that culminated in the French Revolution in 1789”. Just like with pure impatience, also in this case, all humans have some selfish-selfless balance in themselves, which could be affected by history and geography.

Analytic limits and vulnerability are also common drivers of impatience, but are especially pronounced in developing countries, as argued by Ascher. Analytic limits become particularly influential in uneducated societies and societies with distorted images about the future, including excessive optimism. Judging by data on adult literacy and the share of labor force with tertiary education, we cannot blame Georgians’ shortsightedness on a lack of (formal) education. Leaving quality of education issues aside, according to these standard indicators Georgia is quite comparable to most EU countries and the US. On the other hand, according to ISET-PI’s Consumer Confidence Index, Georgians are incorrigible optimists. People’s expectations about the future (as described by our Expectations Index) have been higher than their evaluation of the present (measured by the Present Situation Index) in every month since the survey’s launch in May 2012. One can think of this as a widespread phenomenon but, if we look at other countries, for example Russia and the USA, this does not appear to be true.

How could this optimism explain Georgia’s position in the international impatience ranking? A typical question used to measure impatience is whether people prefer a certain amount today or a larger amount at a later date (for example one year later). An optimist, who expects to be richer one year from now, is more likely to accept a smaller amount now, because it will add a lot more utility today (when the individual is “poor”) compared to the utility generated by the larger amount tomorrow (when the individual will be “rich”).

Vulnerability is another important impediment to farsighted thinking. According to the World Value Survey, out of 60 countries engaged in wave 6 of the survey, Georgia had the lowest share of families (2%) able to save in the previous year and the largest percentage of families (55%) who had to borrow. This means that, in case of negative shocks (at the country or even at the household level), Georgians are significantly more likely to be concerned about their immediate survival rather than long term planning.

LESSONS LEARNED

How important are these four “ingredients” in explaining Georgians’ impatience? Understanding the weight of each contributing factor to impatience will be very useful for designing policies that combat shortsightedness and, as a result, promote development.

For example, if the problem is analytic limits (including excessive optimism), it is important to help the shortsighted subjects raise their self-awareness. Thus, the government and media could provide information about current and future developments in the country to prevent people from building excessively optimistic expectations (e.g. related to availability of government subsidies or the immediate impact of closer integration with the EU).

If vulnerability is a major driver of impatience, it can be dealt with by strengthening safety nets (unemployment or disability benefits, for example) and by promoting other mechanisms to insure the most vulnerable against risks.

As for pure impatience and selfishness, there is no way other than to start building patience and selflessness traits from early childhood. This could be done by emphasizing how postponing benefits brings ever greater benefits in the future and how important it is to do a costly task today rather than leaving it for the future. Also, playing games that encourage selfless behavior and reward children for altruism could be a great way to educate a more farsighted generation.

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Whatever is the source of impatience of the Georgian public, there are, of course, those who benefit from it. Take for example the casino/gaming businesses that have been thriving in Georgia. Other examples are the thousands of consumers who are ready to pay higher prices (e.g. exorbitant interest rates on consumer/pawnshop loans for the privilege of showing off the latest iPhone model) or even offer a bribe to get something sooner rather than later. Regulating business practices and designing public policies so as to reduce the opportunities for taking advantage of other people’s impatience should be another important policy priority for Georgia.