Thanks for blogging my book on poverty. I couldn't figure out how to comment on your post so am trying this route. There has been empirical work supporting my theory. Here is one reference, from October 2010 journal Frontiers in Neuroscience. Experimental subjects were (as I predicted, without knowing about the lab work) risk loving when they started in pain and were confronted with the choice of remaining in their original state and taking a bet that would either alleviate their pain by a certain amount or make it worse by that amount. I have to say I consider that pretty obvious and unsurprising, and as I argued in my book it has only escaped economists because the accidents of intellectual history caused them to pose the question in a misleading way.
I agree with Karelis that the idea that those in painful situations might become more risk-loving rather than risk-averse is not surprising. You don't need to have lived in poverty to understand the impulse. Anyone who has taken a few bad beats at the poker or blackjack table and then started pressing has launched themselves off of the optimal risk-reward curve in a fit of emotion.
Poor individuals often engage in behaviors, such as excessive borrowing, that reinforce the conditions of poverty. Some explanations for these behaviors focus on personality traits of the poor. Others emphasize environmental factors such as housing or financial access. We instead consider how certain behaviors stem simply from having less. We suggest that scarcity changes how people allocate attention: It leads them to engage more deeply in some problems while neglecting others. Across several experiments, we show that scarcity leads to attentional shifts that can help to explain behaviors such as overborrowing. We discuss how this mechanism might also explain other puzzles of poverty.
The study's approach to poverty reminds me of the theory that we all have a finite amount of discipline to expend each day, and after it's gone, we turn into self-indulgent pleasure-seekers. Anyone who has collapsed on their sofa after a brutally long day at work and popped a beer and watched an hour of Sportscenter or Here Comes Honey Boo Boo instead of going for a workout can attest to the explanatory power of this idea.
I rely on Tabarrok's summary since the study's findings are behind a paywall.
SMS argue that immediate problems draw people’s attention and as people use cognitive resources to solve these problems they have fewer resources left over to solve or even notice other problems. In essence, it’s easier for the rich than the poor to follow the Eisenhower rule–”Don’t let the urgent overcome the important”–because the poor face many more urgent tasks. My car needed a brake job the other day – despite this being a relatively large expense I was able to cover it without a second’s thought. Compared to a poorer person I benefited from my wealth twice, once by being able to cover the expense and again by not having to devote cognitive resources to solving the problem.
Both this study and Karelis' work reframe the behavior of the poor in a way that is still logical instead of pinning it on the personalities of those in poverty. That's important, and as Tabarrok notes, we must be especially vigilant to guard against fundamental attribution error in analyzing the behavior of those in poverty.