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On the psychology of poverty

Johannes Haushofer and Ernst Fehr

Science 344, 862 (2014);
DOI: 10.1126/science.1232491

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related to income; that is, poorer households
REVIEW were more likely to choose smaller and earlier
monetary rewards over larger, delayed ones.
Here, the potential reverse causality problem
On the psychology of poverty that high incomes may cause low discount rates
was solved by using rainfall as an instrumental
variable for income. Rainfall is significantly
Johannes Haushofer1,2,3,4* and Ernst Fehr3* correlated with income, and on the assump-
tion that it affects the discounting of future
Poverty remains one of the most pressing problems facing the world; the payoffs only through income it is a valid in-
mechanisms through which poverty arises and perpetuates itself, however, are strument. The IV estimates confirm the nega-
not well understood. Here, we examine the evidence for the hypothesis that poverty tive relationship between the discount rate and
may have particular psychological consequences that can lead to economic income, suggesting that poverty may causally
behaviors that make it difficult to escape poverty. The evidence indicates that affect time-discounting. In addition, the results
poverty causes stress and negative affective states which in turn may lead to show marginally more risk aversion in poorer
short-sighted and risk-averse decision-making, possibly by limiting attention and participants.
favoring habitual behaviors at the expense of goal-directed ones. Together, these Negative income shocks are a pervasive feature
relationships may constitute a feedback loop that contributes to the perpetuation of the lives of the poor, and they are particularly
of poverty. We conclude by pointing toward specific gaps in our knowledge and vulnerable to these shocks because of limited
outlining poverty alleviation programs that this mechanism suggests. access to credit markets (9, 10). It is there-

fore interesting to study the effect of negative
ore than 1.5 billion people in the world useful step can be made by focusing on mate- income shocks on economic choice. In (11),
live on less than $1 a day (purchasing rial poverty as a central feature and powerful subjects were randomly assigned to income
power parity in December 2013 dollars) predictor of the ancillary features of poverty shocks in a laboratory experiment after they
(1). This lack of financial means has described above. Second, in asking whether pov- had first earned some income in an effort task.
far-reaching consequences: In Africa, the erty reinforces itself through psychological chan- The authors compared the discounting of fu-
average person dies 21 years earlier than in nels, we are not suggesting that the poor bear ture payoffs of subjects who experienced a neg-
Europe, one-third of the population is illiterate (1), blame for their poverty. Rather, an environ- ative shock with those of a control group that
and one in three children is stunted in growth ment of poverty into which one happens to had not experienced an income shock; im-
(2). Economic poverty means living in squalor, have been born can trigger processes that re- portantly, a suitable choice of initial endow-
dying early, and raising children who face similar inforce poverty. On this view, any one of us might ments ensured that the two groups had the
prospects. be poor if it were not for certain environmental same absolute income when they performed the
But does poverty affect peoples affective states coincidences. discounting task. In addition, the potential
and their economic choice patterns, i.e., the way reverse causality between income levels and
they feel and act? Here, we discuss recent findings The Effect of Poverty on Risk-Taking time-discounting could be perfectly controlled
that suggest that poverty causes negative affect and Time-Discounting in the laboratory setting through exogenous ma-
and stressdefined as an organisms reaction to People living in poverty, especially in devel- nipulation of income levels. Controlling for abso-
environmental demands exceeding its regulatory oping countries, have repeatedly been found lute income, subjects who received a negative
capacityand that this effect may change peoples to be more risk averse and more likely to dis- income shock exhibited more present-biased eco-
behaviorally revealed preferences. Poverty may, count future payoffs than wealthier individ- nomic behavior than those whom the shock did
in particular, lower the willingness to take risks uals. For example, discount rates of poor U.S. not affect. No opposite effect was found for positive
and to forgo current income in favor of higher households are substantially higher than those income shocks. Thus, negative income shocksa
future incomes. This may manifest itself in a of rich households (3); likewise, studies of Ethi- pervasive feature of povertyappear to increase
low willingness to adopt new technologies and opian farm households (4) and a South In- time-discounting.
in low investments in long-term outcomes such dian sample (5) find that lower wealth predicts In a similar study, subjects were randomly as-
as education and health, all of which may de- substantially higher (behaviorally measured) signed to a smaller (poor condition) or a larger
crease future incomes. Thus, poverty may favor discount rates. Wealthier households or those (rich condition) budget (12) and were then
behaviors that make it more difficult to escape with higher annual incomes also display lower asked to make a series of purchasing decisions.
poverty. levels of risk aversion in representative samples Naturally, those with a smaller budget faced more
Two caveats are in order at the outset. First, (6, 7). difficult trade-offs because they could afford
poverty is characterized not only by insufficient In addition to these correlations between wealth/ fewer of the desirable goods. Because decision-
income but also by dysfunctional institutions, income and preference measures, there is also making under difficult trade-offs is likely to
exposure to violence and crime, poor access to evidence suggesting that poverty has a causal consume scarce cognitive resources, subjects with
health care, and a host of other obstacles and effect on risk-taking and time-discounting. In a small budget were hypothesized to be im-
inconveniences. This diversity complicates a (7), the potential reverse causality problemthat paired in subsequent tasks that require will-
single and simple account of the relationship low risk aversion may on average lead to higher power and executive control (13). The study
between poverty and psychology. However, a first, incomes or wealthis tackled by using windfall indeed found that previous decision-making in
gains as an instrumental variable (IV). The IV the poor conditionbut not the rich condition
Abdul Latif Jameel Poverty Action Lab, Massachusetts estimates show a substantial negative effect of impaired behavioral control, as measured by
Institute of Technology, 30 Wadsworth Street, Cambridge, income/wealth on risk aversion. The assumption the duration of time subjects were able to
MA 02142, USA. 2Program in Economics, History, and
Politics, Harvard University, Cambridge, MA 02138, USA.
needed for this approach to work is that windfall squeeze a handgrip and their performance in
Department of Economics, University of Zrich, gains are positively correlated with household a Stroop task. Thus, poverty appears to affect
Blmlisalpstrasse 10, Zrich 8006, Switzerland. 4Department income/wealthwhich they areand that they decision-making by rendering people suscep-
of Psychology and Woodrow Wilson School of Public and only affect risk aversion through the income/ tible to the willpower and self-control depleting
International Affairs, Princeton University, Princeton, NJ
08544, USA.
wealth channelwhich is plausible. In another effects of decision-making. Because willpower
*Corresponding author. E-mail: (J.H.); study (8), experimentally measured discount and self-control are hypothesized to be important (E.F.) rates of Vietnamese respondents were negatively components of the ability to defer gratification,

862 23 MAY 2014 VOL 344 ISSUE 6186 SCIENCE

Fig. 1. The relationship between
poverty, affect, and stress. The top
panels show the relationship between
income and life satisfaction, adapted Life satisfaction across countries Life satisfaction within countries, less country average
from (21), using data from the Gallup (ordered probit index) (ordered probit index)
World Poll, (A) across and (B) within
1.5 1.5
countries. We plot standardized
responses of 102,583 respondents
from 131 countries to the question 1.0 1.0
Please imagine a ladder with steps
numbered from zero at the bottom to
ten at the top. Suppose we say that 0.5 0.5
the top of the ladder represents the
best possible life for you and the
0.0 0.0
bottom of the ladder represents the
worst possible life for you. On which
step of the ladder would you say you -0.5 -0.5
personally feel you stand at this time?
In (A), we plot country mean
responses against country gross -1.0 -1.0
domestic product (GDP) per capita
(purchasing power parity in constant
-1.5 -1.5
2000 international dollars). The
dashed line is fitted from an ordinary 0.5 1 2 4 8 16 32 -3 -2 -1 0 1 2 3
least squares (OLS) regression; the Log real GDP per capita Log (household income), less country average
dotted line is fitted from a lowess (thousands of dollars)
estimation. In (B), each circle
represents one income bracket in one C D
country, with its diameter proportional
Happiness (z-score) Cortisol (log nmol/I)
to the population of that income
category in that country, and the
horizontal axis represents the log of 2.55
household income after subtracting
the country average. (C) Z-scored
happiness responses of N = 1440 poor 0.3 2.50
households in Kenya to the happiness
question from the World Values Survey 0.2 2.45
(How happy are you with your life as a
whole these days? on a scale from
1 to 10). Data are from (32). 2.40
Households received unconditional
transfers of either $1500 (red) or 0
$400 (blue) or no transfer (gray), and 2.35
happiness responses were measured -0.1
about 1 year after the start of the $1,500 $400 No $1,500 $400 No
program. (D) Levels of the stress transfer transfer transfer transfer transfer transfer
hormone cortisol of the same
households in Kenya. The error bars in
(C) and (D) represent the standard errors of the regression coefficients of the $1500 and the $400 dummy variable in an OLS regression, with happiness or cortisol
levels, respectively, as dependent variables. Significant differences (P < 0.05) between conditions are marked with an asterisk.

such effects may also affect time-discounting (9, 14), implying that they are much more likely surveyed before payday are more present-biased,
behavior. to be liquidity-constrained. Thus, if a poor indi- and this effect is specific to monetary tasks and
vidual has the choice between a current and a does not extend to nonmonetary real effort
Why Does Poverty Affect Risk-Taking delayed payment in an experiment, he or she may tasks. Because liquidity constraints cannot play
and Time-Discounting? opt for the current payment not because of an a role with regard to effort, this result suggests
The economic and social conditions under which intrinsic preference for present payments but be- that liquidity constraints before payday are the
poor people live may affect discount rates and cause of the credit market imperfections present source of the apparent present bias for monetary
risk-taking behavior, even though the intrinsic in informal markets. outcomes.
time and risk preferences of the poor may be In support of this view, a recent study (17) The anticipation of future liquidity constraints
identical to those of wealthier people. For ex- measures time preferences of U.S. households may also induce an individual to prefer a safe
ample, poor people often have no access to formal shortly before versus shortly after payday. payment over a risky payment (e.g., in an ex-
credit markets (9, 10) and are forced to borrow Those surveyed before payday have 22% less periment) (15); again, this may occur not be-
through informal channels from money lend- cash, and they spend 20% less than those after cause the individual is intrinsically risk averse
ers, friends or merchants. They often face very payday, suggesting that households are liquidity- but because the safe payment helps alleviate
high interest rates for credit, and frequently the constrained with regard to money before pay- liquidity constraints. In addition, poor indi-
lenders constrain the amount they lend to them day. The study further shows that households viduals often face uninsurable, nondiversifiable

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background risks such as crop failure. They correlated with levels of the stress hormone cor- cortisol levels is mirrored by an increase in self-
may therefore display less risk-taking behavior tisol. Several studies have shown elevated cortisol reported stress. Another study (49) measured cor-
with regard to avoidable risks (e.g., in an exper- levels in persons with lower income and educa- tisol levels in a sample of 354 Swedish blue-collar
iment) even though their risk preferences may tion (24, 25) and lower lifetime economic position workers before and after a subset of these workers
not differ from those who are less exposed to as measured by occupational status (26, 27). Sim- lost their jobs. Cortisol levels were significantly
background risks (16). Indeed, higher background ilar results have been obtained in infants and higher in those workers who lost their jobs.
risks have been shown to be associated with children (2731). Importantly, the layoffs were due to a plant
higher levels of risk aversion (7). Together, these findings show that poverty closure, arguing against the possibility that job
Thus, economic theory and empirical evidence correlates with unhappiness, depression, anxiety, loss might be a consequence rather than a cause
suggest that poor households may display a and cortisol levels. But is this relationship causal? of high cortisol levels in individual workers. How-
lower willingness to take risks and to forgo ever, the fact that only one plant was studied
current income for larger future incomes, even Causal Effect of Poverty on and attrition among participants over the course
though their intrinsic time and risk preferences Affect and Stress of the study was non-negligible weakens the
are not necessarily different from those of richer The effect of reductions in poverty on affect and finding. A further study (50) uses declining in-
households. However, we will provide evidence stress is usually studied in the context of ran- dustries as an exogenous source of variation
suggesting that this is not the whole story. In a domized field experiments or natural experi- for job loss and finds an effect of job loss on
first step, we will show that poverty is associated ments such as lottery wins. One such study (32) family mental health using this approach.
with negative affect and with stress, and in a examined the effects of an unconditional cash These findings thus suggest causal links be-
second step we will discuss evidence suggesting transfer program in Kenya on psychological well- tween poverty, psychological well-being, and
that negative affect and stress change subjects being. Households were randomly chosen to re- stress levels. Altogether, we identified 25 studies
risk-taking and time-discounting. In the second ceive unconditional transfers of either $0, $400, that report the effect on psychological well-
part, in particular, we will focus on experiments or $1500. Psychological well-being was measured being of an increase or decrease in poverty,
in which subjects are randomly assigned to treat- with the happiness and life satisfaction questions induced either in randomized controlled trials
ment conditions and in which the usual economic from the World Values Survey, and stress and de- or natural experiments [see the supplementary
channels for changes in time and risk-taking pression were measured using the Center for material (51)]. Of these, 18 studies show a pos-
behaviore.g., liquidity constraints or economic Epidemiologic Studies Depression Scale, Cohens itive effect of poverty alleviation on psycholog-
background riskscannot play a role. It is there- Perceived Stress Scale, and levels of the stress hor- ical well-being or stress, 5 studies show effects on
fore impossible to attribute differences in behav- mone cortisol in saliva. The study finds substantial some psychological variables related to well-
ior across treatment to these channels. improvements in all of these variables when house- being or stress (e.g., certain mental disorders),
holds receive positive transfers (Fig. 1C), but the but not others, and 2 show no results. The mixed
The Effect of Poverty on Affect stress hormone cortisol was only reduced in those or inconsistent findings in these studies may reflect
and Stress who received large transfers (Fig. 1D). Similarly, deficiencies or noise of some of the measures used,
Correlations Between Poverty, Affect, several other studies (3337) report results from heterogeneity in the interventions tested, or hetero-
and Stress randomized controlled trials that show that cash geneity in the effect of changes in poverty on par-
For several decades, the prevalent view on transfers reduce distress and depression scores (38). ticular psychological constructs; future studies
the relationship between income and psycho- Similarly, using natural experiments such as need to assess these different explanations.
logical well-being was what became known the introduction of guaranteed incomes, lottery Thus, the large majority of the findings suggests
as the Easterlin Paradox (18), according to payouts, access to a pension scheme, and pay- that increases in poverty often lead to negative
which income, self-reported happiness, and life outs to Native Americans from a casino opening, affect and stress, and decreases in poverty have
satisfaction are correlated within but not across several studies find that the resulting increases the opposite effect. We now ask whether negative
countries and are uncorrelated above income in income lead to a reduction in hospitaliza- affect and stress influence risk-taking and time-
levels required to meet basic needs. In addition, tion for mental health problems (39), lower con- discounting and could therefore be among the
higher incomes were thought to be uncor- sumption of anxiolytics (40), and increases in channels through which poverty affects eco-
related with increased happiness and satisfaction self-reported mental health (4144). Less di- nomic behavior.
over time. However, larger and newer data sets rect alleviations of poverty have also shown effects;
now suggest that higher incomes are associated several randomized controlled trials report in- The Effect of Negative Affect
with more happiness and life satisfaction both creases in psychological well-being when partic- and Stress on Risk-Taking
within and across countries, that no saturation ipants receive health insurance (45), improved and Time-Discounting
point exists (although there are decreasing hap- housing (46), and access to water (47). The existence of severe credit constraints and
piness returns to income), and that as countries Conversely, the effect of increases in poverty uninsurable background risks implies that the
grow richer, they also grow happier (1921). Fig. 1 on well-being is usually studied using unex- poor are particularly vulnerable to income and
shows a correlation between self-reported life pected shocks such as spells of bad weather for health shocks; that is, they are less able to exert
satisfaction and income across countries (Fig. 1A) farmers. One such study examined whether ran- control over their life circumstances. As discussed
and within countries (Fig. 1B). dom negative income shocks to farmers in Kenya, above, this leads to stress and negative affective
In addition to happiness and life satisfac- generated by periods of drought, lead to increases states such as unhappiness and anxiety, and it
tion, poverty is also more broadly related to in cortisol levels (48). The study finds that farmers raises the question whether such states exert an
mental health. According to the 2003 World have higher levels of cortisol and self-reported independent effect on decision-making.
Health Report, the poorest population quintiles stress during drought periods when crops are
in rich countries exhibit a depression and anxiety likely to fail. This relationship does not hold for Effects on Risk-Taking
disorder prevalence that is 1.5 to 2 times as high as nonfarmers and is more pronounced among In a recent paper (52), subjects were randomly
that of the richest quintiles (22). A recent com- farmers who depend solely on agriculture for assigned to the threat of receiving unpredictable,
prehensive review of 115 studies (23) on the their income than among those who also have randomly administered high or low electrical shocks
relationship between mental health and poverty other sources of earnings. In addition, it is robust to their hands during a risk-taking task. The ad-
in low- and middle-income countries finds a neg- to controlling for physical activity, suggesting ministration of unpredictable shocks is a reliable
ative association between poverty indicators and that changes in labor supply are not the driving method for inducing a state of fear and stress
good mental health outcomes in 79% of studies. factor; the plausibility of this alternative account (53). Subjects in the high-threat condition showed
Finally, income and socioeconomic status are also is further reduced by the fact that the increase in significantly higher risk aversion than those in

864 23 MAY 2014 VOL 344 ISSUE 6186 SCIENCE

the low-threat condition (Fig. 2A). In another Thus, it is possible not only to increase risk aver- ly sustained through an appropriate induction
study (54), subjects fear was exogenously in- sion through fear induction but also to reduce procedurefor example, through the threat of
duced by making them watch a horror video that risk aversion by reducing fear. aversive shockstheir emotional effect is likely
shows a young man being inhumanly tortured; Although the majority of the studies show an to be short-lived. It may thus be the case that
this fear induction also led to significantly higher unambiguous positive effect of fear and anxiety the fear induction was no longer effective for a
risk aversion compared with subjects who saw a on risk aversion (51), we found one study that sizeable part of the 100 choice problems.
control video. Fear induction also led to more does not show such an effect (58). However, this Increased risk aversion can also be induced
risk-averse choices in several other studies (55, 56), study fails to document the specificity of the by administering hydrocortisone, which raises
and it has also been shown that risk-averse choice fear induction and confronts subjects with 100 cortisol levels in the brain and thus mimics
can be reduced through cognitive reappraisals that different choice problems after the fear induc- some of the neurobiological effects of stress. In
undo the fear effect of a fear-inducing video (57). tion. If induced emotions are not continuous- a placebo-controlled experiment (59), half of the
volunteers received hydrocortisone over a pe-
riod of 8 days, enabling the study of the acute
(on day 1) and the chronic effects (on subse-
A B quent days) of the substance. Interestingly, the
Risky investment Coefficient of relative risk aversion acute effects of hydrocortisone did not cause
changes in risk-taking, whereas the chronic ad-
0.8 ministration led to strong increases in risk
48 aversion: Subjects in the placebo and the acute
0.7 cortisone condition chose the risky alternative
in a risk-taking task in roughly 50% of the cases,
46 but subjects in the chronic hydrocortisone con-
0.6 dition chose it only in slightly more than 20% of
the cases (Fig. 2B). Other studies (6063) have
0.5 used well-known behavioral stress inductions
the cold pressor task or the Trier Social Stress
Test (TSST)to show that stress typically in-
42 0.4
duces more risk aversion, although this holds
Fear No fear Chronic Acute Placebo Placebo only for the domain of gains and not for losses
cortisol cortisol day 7 day 1
in (61) and only for women in (63). However,
the stress induction did not work for men in the
C D latter study because their cortisol levels in the
Discount factor Impatient choices stress and the control conditions were identical.
Thus, taken together, both the evidence from
0.35 experiments on fear and on stress induction in-
0.4 dicates that fear and stress cause higher levels
of risk aversion.
0.3 Effects on Time-Discounting
A number of recent studies show that nega-
tive affect and stress lead to increases in time-
0.25 discounting (51, 6466). One study (64) induced
0.25 sadness by showing participants film clips that
were independently verified to induce the de-
sired emotional state. They subsequently offered
subjects choices between smaller amounts of
Sad Neutral Hydrocortisone Placebo money available immediately or larger amounts
available after a delay. This task measures tem-
Fig. 2. Effect of negative affect and stress on risk and time preferences. (A) Amount invested poral discounting, i.e., the degree to which de-
in the risky asset (out of a total of CHF 24) when subjects (N = 41) faced the threat of receiving a layed rewards are devalued. Subjects who
painful electrical shock (fear condition, red bar) and when they received only a mild shock that was had viewed the sadness-inducing film clip were
not painful (no fear condition, gray bar). Data are taken from (52). Subjects who faced the threat of a less likely to choose larger, delayed payments
painful shock were less likely to make risky investments (P < 0.05). The error bar indicates the stan- than those in the control condition; that is, they
dard error of the regression coefficient for the fear dummy in an OLS regression with risky investment discounted future payments more strongly, in-
as the dependent variable. (B) Coefficient of relative risk aversion (mean T SEM) of N = 36 subjects dicating that sadness reduces patience (Fig. 2C).
that were exposed to either repeated pharmacological elevation of cortisol levels through administra- Conversely, another recent study (65) induced
tion of hydrocortisone over 1 week (red), acute administration (1 day, green), or placebo (day 7, blue; positive affect through film clips and found that
day 1, gray). Data are taken from (59). Chronic administration led to an increase in the coefficient it increased patience in a similar task.
of relative risk aversion (CRRA) relative to placebo on both day 1 (P < 0.05) and day 7 (P < 0.05). As in the domain of risk-taking, pharmaco-
(C) Discount factors (mean T SEM) of N = 189 subjects who were exposed to either a sad or a logical elevation of the stress hormone cortisol
neutral prime. Data are from (64). Subjects in the sad condition exhibited lower discount factors through hydrocortisone administration has also
(P < 0.05), implying greater discounting of the future (because a low discount factor indicates a low been found to increase time-discounting. A recent
valuation of future payoffs relative to present payoffs). (D) Share of impatient choices (mean T SEM) study administered 10 mg of hydrocortisone
of N = 53 subjects who received either hydrocortisone or placebo. Data are from (66). Subjects in or placebo orally to healthy subjects (66). After
the hydrocortisone condition were more impatient (P < 0.05) in a discounting task; i.e., they showed administration, subjects performed a temporal
greater discounting of future payoffs. Significant differences (P < 0.05) between conditions are discounting task similar to that described above.
marked with an asterisk. Subjects who had been given hydrocortisone

SCIENCE 23 MAY 2014 VOL 344 ISSUE 6186 865

showed an increase in temporal discounting is currently restricted to laboratory studies, and top (like a piggy bank) (83) all led to consider-
compared with placebo 15 min after administra- the literature does little to distinguish between able increases in savings.
tion; that is, they valued the present more highly the effects of acute and chronic stress on eco- In our view, the second possibility, i.e., target-
relative to the future (Fig. 2D). Thus, both nega- nomic choice. Because poverty is usually a chron- ing the psychological consequences of poverty,
tive affect and elevated cortisol levels increase ic condition, future studies should examine the holds much promise for future work. Although
time-discounting, whereas positive affect has effect of changes in chronic stress on economic an early randomized controlled trial showed that
the opposite effect (6467). Future studies will choices in the laboratory as well as in field group interpersonal psychotherapy helped peo-
have to elucidate whether chronic stress in con- settings. Second, there is still little evidence on ple complete daily economic tasks in Uganda
ditions of poverty has similar behavioral ef- the causal effects of different poverty alleviation (84), research on the economic effects of such in-
fects as acute stress induced under laboratory interventions on life satisfaction and well-being. terventions is otherwise still in its infancy. Most
conditions. We do not know whether some interventions important, this study targeted depressed indi-
Exactly how might negative affect and stress work better, per dollar spent, than others. For viduals, whereas the evidence discussed in this
lead to increased discounting? One possibility example, are cash transfers more effective than article shows that the debilitating effects of stress
lies in the fact that stress has recently been shown the provision of health insurance or crop fail- and negative affect on economic behavior may
to induce a shift from goal-directed to habitual ure insurance? Third, the temporal dimension occur even in individuals who do not suffer from
behavior (68). If the habitual behavior is to con- remains almost entirely unexplored. Little is full-fledged clinical depression. This insight sug-
sume immediately, this mechanism would predict known about whether poverty alleviation leads gests that psychotherapy-like interventions may
that stress should increase temporal discounting to a permanent or only a temporary increase in have economic benefits even in nonclinical pop-
by favoring habitual responses. A related possibility psychological well-being. To address this prob- ulations (85).
is that stress and negative affect may bias lem, repeated surveying after interventions is More broadly, we propose that an increased
attention toward salient cues. If immediate con- necessary. understanding of the relationship between pov-
sumption is more salient than delayed consump- A further open question is whether the rela- erty, its psychological consequences, and their
tion, this mechanism would also predict that tionships outlined above could constitute a potentially disadvantageous effects on economic
stress and negative affect should increase time- poverty trap. For this to be the case, a strong choice will lead to poverty alleviation programs
discounting. In line with this view, Shah et al. nonlinearity in the relationship between pov- that achieve two goals. First, they will take both
(69) showed that decision-making under scarcity erty and psychological outcomes, or psycho- the psychological costs of poverty and, conversely,
whether this scarcity is temporal, financial, or logical outcomes and economic choice, would the psychological benefits of poverty alleviation
of another typeshows signs of the irrationality be required (71). No evidence is present for the into account. Second, they will consider psycho-
frequently observed in decision-makers in set- former; existing studies on the relationship logical variables as novel intervention targets
tings of poverty and that this effect is due to at- between income and psychological outcomes for poverty alleviation. It is our hope that this
tentional capture by salient cues. More recently, show no strong signs of being nonlinear. In will lead to a more refined understanding of
Mani et al. (70) found that poor individuals (in contrast, the famous Yerkes-Dodson law states poverty and thus contribute to the solution of
contrast to the rich) performed worse on tasks that stress and performance may exhibit a this lingering global problem.
measuring intelligence and cognitive control af- nonlinear relationship resembling an inverted
ter they had been asked to think about their fi- U (72): According to this law, moderate in-
nances; similarly, farmers performed worse on creases in arousal lead to improvements in per-
1. WHO, World Health Statistics 2013 (WHO, Geneva,
these tasks before the harvest, when they were formance, whereas extreme levels of arousal lead 2013).
relatively poor, than after the harvest. In both to performance decrements (73, 74). However, 2. UNICEF, The State of the Worlds Children (UNICEF, New York,
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tal for their performance. It is possible that sim- future research. Ethiopia, Environment for Development Discussion Paper No.
ilar attentional mechanisms are behind the effect Finally, what types of welfare programs or EfD DP 08-16 (2008); available at
of poverty on risk-taking and time-discounting, interventions would break the relationships dis- Documents/EfD-DP-08-16.pdf
in that they induce a focus on immediate and cussed above? If the proposed feedback loop 5. J. L. Pender, J. Dev. Econ. 50, 257296 (1996).
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available at preferences. One study (87) exposed subjects to an We thank M. Alsan, V. Baranov, L. I. O. Berge, S. Bowles,
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Aging, D. A. Wise, Ed. (University of Chicago Press, Chicago, However, in this study, the time-preference task was gratefully acknowledge support from the Cogito Foundation,
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Econ.; available at less powerful than movie clips or that subtly different SUPPLEMENTARY MATERIALS
2009.96.html types of affect may differentially affect time preference.
44. One study finds no effect of lottery winnings on self-reported Another study used the TSST to induce stress, then
Supplementary Text
happiness (86). measured temporal discounting and found no effect
Literature Reviews
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