Economic decision-making in poverty depletes behavioral control

• Author: Dean Spears
• Published in: The B.E. Journal of Economic Analysis & Policy
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Abstract

Economic theory and conventional wisdom 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 of this empirical paper is to isolate the direction of causality from poverty to behavior. Three similar possible theoretical mechanisms, found in the psychology and behavioral economics literatures, cannot be definitively separated. One supported theoretical explanation is that poverty, by making economic decision-making more difficult, depletes cognitive control.