The Rediff US Special/ Aseem Chhabra

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."

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.

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."

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.

"Historically speaking, in the sociology of the profession (of economics), we had a very powerful model that states that people optimize, people are purposeful, they are good at making inferences," Mullainathan said. "For a long time people were just seeing what that model could do. In the late 1970s, economists like Dick Thaler (the 55-year-old professor at the University of Chicago) said 'this really isn't always the case. Let me show some interesting anomalies.' "

Thaler's research did not quite make the impact that it should have, says Mullainathan. He credits Laibson with formalizing ideas of behavioral economics which made economists more receptive to this relatively new discipline.

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.

"You can say that this has nothing to do with social networks," he said. "Those areas are poor areas. Poor people live there and poor people use lots of welfare. We had to come up with an empirical technique to separate that. Once we did that, it (the reason people are on welfare) still remained largely impacted by the social network affect."

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."

His single lifestyle allows him to watch basketball games on television. He is an avid reader of novels and especially likes the writings of the Canadian-Indian novelist Rohinton Mistry.

"What I think would have made a great television serial is A Fine Balance (Mistry's second novel)," he says. "It had an episodic feel and it was quite sentimental. That would have gone well on television."

He has read several other Indian authors, although he found none (except for Salman Rushdie) really exciting. He thinks they have gotten fame because they portray exotic locales. Currently he is reading two-time Booker Prize winner J M Coetzee (Disgrace and Waiting for the Barbarians).

He enjoys playing Diablo, a video game, on his PC at work -- although only 10% of the time, he adds. The rest of the time he uses the office computer for research. But most surprising, for a university professor and for someone of his generation -- he does not own a computer at home.

"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."

Design: Lynette Menezes

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