On the Psychology of Poverty
Johannes Haushofer, Ernst Fehr
Science · 2014
Abstract
Synthesizes evidence that poverty and its attendant stress causally shape economic decision-making, potentially creating a psychological feedback loop that helps perpetuate poverty.
Methodology
Review of experimental and field evidence linking poverty to stress and negative affect, and in turn to risk aversion and short-term (present-biased) decision-making.
Findings
Poverty induces stress and negative emotion, which push people toward more risk-averse and short-sighted choices; those choices can in turn deepen poverty. The mechanism suggests a self-reinforcing trap driven partly by the psychological burden of scarcity rather than by stable preferences or ability.
Applied nudge
Interventions that reduce financial stress and cognitive load (predictable payments, buffers, reduced hassle) may improve decisions more than pure information—target the stressor, not just the choice.
Citation
Haushofer, J., & Fehr, E. (2014). On the psychology of poverty. Science, 344(6186), 862-867.
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