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Economic Decision-Making in Poverty Depletes Behavioral Control

Listed author(s):
  • Spears Dean

    ()

    (Princeton University)

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.

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Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 11 (2011)
Issue (Month): 1 (December)
Pages: 1-44

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Handle: RePEc:bpj:bejeap:v:11:y:2011:i:1:n:72
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  1. Nava Ashaf & Dean Karlan & Wesley Yin, 2006. "Tying odysseus to the mast: Evidence from a commitment savings product in the philippines," Natural Field Experiments 00206, The Field Experiments Website.
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  11. Burks, Stephen V. & Carpenter, Jeffrey P. & Götte, Lorenz & Rustichini, Aldo, 2008. "Cognitive Skills Explain Economic Preferences, Strategic Behavior, and Job Attachment," IZA Discussion Papers 3609, Institute for the Study of Labor (IZA).
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  13. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
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