A Behavioral-Economics View of Poverty
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The authors argue that the behavioral patterns of the poor may exhibit the same basic weaknesses and biases as do people from other walks of life, except that in poverty, with its narrow margins for error, the same behaviors often manifest themselves in more pronounced ways and can lead to worse outcomes.Abstract:
Standard theorizing about poverty falls into two camps. Social scientists regard the behaviors of the economically disadvantaged either as calculated adaptations to prevailing circumstances or as emanating from a unique "culture of poverty," rife with deviant values. The first camp presumes that people are highly rational, that they hold coherent and justified beliefs and pursue their goals effectively, without mistakes, and with no need for help. The second camp attributes to the poor a variety of psychological and attitudinal short-fallings that render their views often misguided and their choices fallible, leaving them in need of paternalistic guidance. We propose a third view. The behavioral patterns of the poor, we argue, may be neither perfectly calculating nor especially deviant. Rather, the poor may exhibit the same basic weaknesses and biases as do people from other walks of life, except that in poverty, with its narrow margins for error, the same behaviors often manifest themselves in more pronounced ways and can lead to worse outcomes. In what follows, we illustrate the kinds of insights that might be gained from a behaviorally more realistic analysis of the economic conditions of the poor, and we propose that alternative policies for alleviating poverty be considered.read more
Citations
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Poverty impedes cognitive function
TL;DR: It is suggested that poverty-related concerns consume mental resources, leaving less for other tasks, because poverty itself reduces cognitive capacity.
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Some Consequences of Having Too Little
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References
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Choices, Values, and Frames
Daniel Kahneman,Amos Tversky +1 more
TL;DR: Prospect theory as mentioned in this paper is an alternative to the classical utility theory of choice, and has been used to explain many complex, real-world puzzles, such as the principles of legal compensation, the equity premium puzzle in financial markets, and the number of hours that New York cab drivers choose to drive on rainy days.
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Choices, Values, and Frames
Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this paper, the cognitive and psychophysical determinants of choice in risky and risk- less contexts are discussed, and the relation between decision values and experience values is discussed, as well as an approach to risky choice that sketches an approach for decision making that can be seen as the acceptance of a gamble that can yield various outcomes with different probabilities.
Journal ArticleDOI
Mental accounting matters
TL;DR: Mental accounting is the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities as discussed by the authors, where outcomes are perceived and experienced, and how decisions are made and subsequently evaluated.
Journal ArticleDOI
Obedience to Authority
A. David Jones,Stanley Milgram +1 more
TL;DR: In this article, the authors set up a simple experiment at Yale University, where a person comes to a psychological laboratory and is told to carry out a series of acts that come increasingly into conflict with conscience.
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Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving
TL;DR: In this article, the authors propose a prescriptive savings program, called Save More Tomorrow (hereafter, the SMarT program), where people commit in advance to allocating a portion of their future salary increases toward retirement savings.