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Poor and Rational: Decision-Making under Scarcity

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  • Dietmar Fehr
  • Günther Fink
  • B. Kelsey Jack

Abstract

We investigate the link between poverty and decision-making in a sample of farmers in Zambia, who were given the opportunity to exchange randomly assigned household items for alternative items of similar value. Analyzing a total of 5,842 trading decisions and leveraging multiple sources of variation in financial constraints, we show that exchange asymmetries decrease in magnitude when participants are more constrained. This result is robust to experimental procedures and is not mediated by changes in cognitive performance. Consistent with the interpretation that scarcity leads to more rational decisions by increasing the utility loss from forgone trading, we show that trading probabilities go up when the market value of the items is exogenously increased.

Suggested Citation

  • Dietmar Fehr & Günther Fink & B. Kelsey Jack, 2022. "Poor and Rational: Decision-Making under Scarcity," Journal of Political Economy, University of Chicago Press, vol. 130(11), pages 2862-2897.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/720466
    DOI: 10.1086/720466
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    Cited by:

    1. Dmitriy Sergeyev & Chen Lian & Yuriy Gorodnichenko, 2023. "The Economics of Financial Stress," NBER Working Papers 31285, National Bureau of Economic Research, Inc.
    2. Maulik Jagnani & Claire Duquennois, 2023. "Financial concerns and sleeplessness," French Stata Users' Group Meetings 2023 09, Stata Users Group.
    3. Florian Englmaier & Stefan Grimm & Dominik Grothe & David Schindler & Simeon Schudy, 2018. "The Effect of Incentives in Non-Routine Analytical Team Tasks," CESifo Working Paper Series 6903, CESifo.

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