It is plausible that being poor has psychological effects. At the very least, it appears that some of these psychological effects may ultimately make it harder to escape poverty. Johannes Haushofer and Daniel Sarikas examine the evidence on these and related issues in „The Psychology of Poverty: Where Do We Stand?''” ( Social philosophy and policy2024, 40:1, 150-184; A pre-print draft is also available as: NBER Working Paper 31977). This paper is part of a symposium of his 12 papers in this issue on the theme of 'Poverty, Agency and Development'.
The evidence is very clear that low-income people feel better when given money. A more difficult question is whether poverty has certain psychological effects that influence decision-making and can lead to staying in poverty. This theory was powerfully and clearly put forward in a 2013 book. Sendhil Mullainathan and Eldar Shafir, Scarcity: Why having too little can mean so much. I wrote about this debate about a decade ago in Conversable Economist magazinementions contemporary research by Haushofer, Mullainathan, and Shafir, and quotes several passages from George Orwell's 1937 book. Road to Wigan PierIn it, he explores how many poor and working-class people are accustomed to living on a „fish and chips“-like combination of unhealthy food, cheap luxuries, gambling and electronic entertainment. (Radio at the time) portrays (with frustration and empathy) how people are suffering, in a way that helps compensate for their limited economic prospects.
In a recent essay, Haushofer and Sarikas explain the earlier hypothesis by Mullainathan and Shafir:
The authors argue that poverty consumes cognitive resources such as attention, executive control, and working memory, thereby impairing decision-making. Specifically, deprivation reduces overall mental bandwidth, directing attention to salient income-related features of the decision problem at the expense of other less salient but potentially important aspects. It suggests both fixing. The publication of this book was accompanied by two groundbreaking studies. In a series of laboratory experiments, Anuj Shah, Mullainathan, and Shafir showed that participants who experienced a lack of experimental „budget“ (points or time) were more likely to „overborrow“ the experimental budget. Ta. Anandi Mani and co-authors explained financial scenarios to low-income and high-income participants at a shopping mall in New Jersey and found that when low-income participants thought about difficult financial issues, they reported that fluid intelligence would decline. They also report that among sugarcane farmers in India, performance on similar tasks pre-harvest (when resources are scarce) is lower compared to post-harvest.
Haushofer and Salikas examine how negative shocks to poverty and income affect psychological behaviors, particularly those related to economic outcomes such as cognitive function, short-term, trust, and excessive risk-taking. Since then, he has reviewed a wide range of literature. Evidence comes from a variety of situations. Real-world evidence from harvest-related shocks for farmers in low-income countries. Laboratory experiments involving structured games and scenarios in the classroom. A natural environment in which people experience more or less stress regarding income and finances. others. Alternatively, some studies attempt to influence the aspirations of the poor (many of these studies are conducted in low-income countries), sometimes by showing videos or holding seminars that highlight job and achievement possibilities. It is done by holding or treating mental health. Solve the problem more directly.
The authors summarize the evidence as follows:
Significant progress has been made in recent years, particularly in establishing the causal effect of income on psychological well-being. Elucidating the precise functional form of psychological well-being in relation to income (satiety). Improve your understanding of the importance of relative income. Most notably, the causal effect of income on psychological well-being is now well established. Research on the effects of deprivation and stress on financial decision-making has also made great strides in recent years. However, the overall picture that emerges from this literature is not so clear. Individual studies often provide statistically weak and contradictory evidence, and replication attempts are not always successful. Perhaps the last word has not been spoken, but in our view the evidence for a poverty trap caused by the effects of poverty on stress, decision-making and cognition is not strong at this time.