CXO

Economic Decision-Making In Poverty Depletes Behavioral Control

Download Now Date Added: Dec 2010
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Economic theory and common sense suggest that time preference can cause or perpetuate poverty. Might poverty also or instead cause impatient or impulsive behavior? This paper reports a randomized lab experiment and a partially randomized field experiment, both in India, and analysis of the American Time Use Survey. In all three studies, poverty is associated with diminished behavioral control. The primary contribution is to isolate the direction of causality from poverty to behavior; three theoretical mechanisms from psychology cannot be definitively separated. One supported explanation is that poverty, by making economic decision-making more difficult for the poor, depletes cognitive control.