Invisible Hands of Gods: How Religion Improves Economic Decion-Making and Outcomes

forthcoming

Religion is big business in Africa. Religion is also poorly understood business. Almost 96% of Ghanaians agree with the statement “religion is important to my daily life”. They put their money where their mouths are. Expenditure surveys show that households spend 15-20% of their budgets on religious activities—more than is spent on clothes, school, or entertainment. What are they paying for? I hypothesize that individuals use religion as a tool to relax psychological constraints. Religion makes it easier for individuals to produce useful, if not necessarily correct, beliefs about themselves or their actions. For example, they may take out a loan to expand a business because they overestimate the returns to effort. Religious organizations also put members in touch with one another and these interactions may make the beliefs true. For example, co-religionists may patronize their fellow member’s newly expanded business, increasing the chances that the business will be a success. In this way, religion relaxes psychological constraints (low confidence in the example) and improves economic outcomes (business profits in the example). I test this hypothesis across three work packages measuring whether the demand for religious messages responds to their psychological usefulness; using text analysis on 10 years of sermons and geo-coded data on church branches to test whether churches compete with one another by attracting members for secular interactions; and conducting a randomized control trial to understand how receiving a prophecy affects business owner’s profits.