We see a piece of paper on the road and simply walk on, barely noticing it. Whether it’s a page from a textbook, a newspaper clipping or a handwritten list, a stray piece of paper doesn’t elicit much interest from us. Except when that paper is a currency note. Be it a ten- or twenty- or five-hundred rupee note, most people would stoop down to pick it up and possibly pocket it, feeling a tad lucky as well.
That money elicits strong emotions in us is a fact of life. That it shapes our behavior, including our short- and long-term goals, speaks of its overarching power. That it can monopolize our attention and control our thoughts suggests that our relationship with money is deeply psychological.
Just as money has a hold on our thoughts and behavior, a lack of it also exerts a strong influence on us. Thus, poverty can cause people to behave in seemingly irrational ways, especially to those who haven’t experienced severe deprivation. However, from the perspective of the needy, their actions do indeed make sense. So, development researchers, policy makers and planners need to view problems and policies through the lens of those they wish to help.
Scarcity Overpowers the Mind
Behavioural economists Senthil Mullainathan and Eldar Sharif describe an interesting study in their book, Scarcity: The True Cost of Not Having Enough, that they performed with farmers in India along with economist, Anandi Mani. Unlike paid laborers, farmers tend to get most of their income in one shot during harvest season. Small farmers tend to be flush with cash soon after harvest but are often indigent in the months leading up to harvest.
The authors picked sugar cane farmers because the crop is harvested year-round in some regions. Typically, sugar cane is harvested “during a four-to-five month-window.” As a result, different farmers in an area can be on different harvest cycles. The researchers administered tests of “executive control and fluid intelligence” on the same farmers, both when they were affluent and penurious.
Soon after harvest, when their pockets are full, farmers performed better on both the cognitive tests compared to when they were short on cash. Further, these farmers were not the most impoverished. Even before harvest, when they were strapped for funds, they did have enough to eat. In cases of more extreme poverty, this result is likely to be exacerbated.
The authors conclude that “poverty reduced fluid intelligence and executive control,” not because poor people lacked these capacities but because scarcity simply overpowers the mind. And this could be one reason why the needy indulge in what seems like ‘irrational’ behavior.
Poverty May Affect Decision-Making and Emotional States
In an article in Science, Johannes Haushofer and Ernst Fehr aver that poverty induces cognitive and affective stress in individuals, which, in turn, leads to myopic and compromised decision-making. This creates a “feedback loop” wherein poverty perpetuates itself. This does not imply that deficient decision-making skills is a trait of the poor; rather, anyone of us, under conditions of extreme stress that poverty imposes, are also likely to make similar, short-sighted choices.
Researchers have, in fact, found a link between poverty and the amount of cortisol, a biochemical marker of stress, in the body, observe Nobel laureates, Abhijit Banerji and Ester Duflo, in their book, Poor Economics: Rethinking Poverty & Ways to End It.
Interestingly, a study in Mexico revealed that when impoverished mothers receive aid, the cortisol levels of their children went down. A similar decrease in cortisol levels was not observed in a control group of children whose mothers weren’t part of the aid program.
In Harvard Magazine, Christy DeSmith reports that anxiety and depression is more common among children from low-income homes. Further, children in poor homes also exhibit smaller hippocampal volumes. The hippocampus is a brain structure involved in memory and learning and a smaller hippocampus usually portends lower academic achievement. However, DeSmith also describes new research by psychologist Katie McLaughlin and colleagues that indicates that children from poor families receiving aid show smaller disparities in both brain structure and mental health.
The Poor Tend to Spend on Hopes and Dreams
Author, Morgan Housel, writes in The Psychology of Money, that the poorest households in the United States spend $412 a year on lotto tickets. Compared to the highest earners, the low-income group spends four times as much on lottery tickets in a year. To many people who are comfortably off, this behavior of the penurious group seems irrational. Given that the poor households would struggle to quaff up $400 for an emergency, yet they fritter away the same amount on lottery tickets, where their chances of winning are so slim.
But before we dismiss their behavior as irresponsible, Housel exhorts us to view their situation from their perspective. Saving isn’t a possibility in their hand-to-mouth existence. Many things we take for granted, like nice vacations, new cars, health insurance, or homes in safe neighborhoods, are beyond their means. The only time they get to dream of these things is when a lottery ticket imbues them with hope. As Housel writes, they are “paying for a dream.”
In a similar vein, Banerji and Duflo also report on a seemingly illogical behavior pattern noticed among poor people. According to the authors, the poor spend as much money as well-to-do people on temporary ailments by visiting doctors. However, when it comes to chronic diseases, the needy seem to prefer consulting traditional healers who drive away evil spirits.
While this seems absurd from the perspective of a rational thinker, it makes perfect sense. Because they can’t afford treatments for chronic ailments, which are long-term and more expensive, poor people turn to the only source who may provide them with some succor. As Banerji and Duflo write, “When there is little else they can do, hope becomes essential.”
Another puzzling behavior exhibited by poor farmers in Kenya is their failure to use fertilizers. Though they understand that their yield will be more fruitful and profitable if they use fertilizers, many of them still don’t end up doing so, note Banerji and Duflo. The reason behind this conundrum is that when planting season arrives, farmers have depleted all the cash they have earned during harvest. And, when farmers are awash with cash, soon after harvest, the fertilizer shops don’t necessarily stock fertilizers till planting season.
Given their hand-to-mouth existence, some expenditure or the other eats away at their money between harvesting and planting seasons. When researchers understood the dilemma of the Kenyan farmers, they gave them the option of buying vouchers for fertilizers, right after harvest. This small intervention increased the percentage of farmers using fertilizers by around 50%.
Thus, when development economists study poor and marginalized communities, it’s important to factor in psychological, social and cultural forces as well. When we see a beggar on the road, rather than being indifferent or dismissive, perhaps, we may remind ourselves that had circumstances been different, that person could have been us and we could have been them. After all, as Banerji and Duflo aptly put it, poverty is more than a lack of money — it can also erode the ability to realize one’s full potential as a human being.
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