The psychological poverty trap

Shafir and Mullainathan tested the intelligence of sugarcane growers in India during two different periods: after selling the harvest, when they enjoy relative prosperity, and before the harvest, when times are tightest. The farmers had better IQ results during the season of plenty. Before the harvest they had problems making fateful decisions, because of stress. The study concluded that poverty generates a psychology of its own.

Most of us judge poor people, viewing them at worst as lazy, at best as suffering from deficient financial behavior. We've gotten used to thinking that being poor is their fault: If they were smarter or more industrious they surely would have overcome their poverty.

Shafir, however, claims that the real culprit isn't lack of ability but problems created by poverty. "These problems are distracting and cause mistakes," he told Markerweek in an interview.

"When you're poor you're surrounded by bad decisions of people around you," he says. "You're so concerned about the present that you can't begin thinking about the future, and that's the big irony: People with the greatest need to think about the future don't have the leisure or emotional capacity to do so. The very essence of poverty complicates decisions and makes immediate needs so urgent that you start making wrong choices. These mistakes aren't any different from anyone else's, but they occur more frequently due to the element of stress, and their implications are much greater."

More of this insight into the psychological impact of poverty, all interesting, from poverty expert Eldar Shafir.

Clearly, fundamental attribution error when it comes to the poor is dangerous, especially as it comes to crafting policy to combat it. I hope a better understanding of the psychological and decision-making impact of poverty will lead to greater empathy on the part of those more fortunate.

Studies like this also point to some of the potential advantages of behavioral economics over classical economics, built around the concept of rational actors. Put someone in a situation of comfort and wealth, and they'll tend to behave more rationally than someone in poverty who has a staggering array of challenges weighing on them.

Previously posted here, also related: the persistence of poverty.