NCPA - National Center for Policy Analysis

Does Poverty Lead to Poor Decision Making?

September 11, 2013

A new study suggests that being poor may keep some people from concentrating on ways that would lead them out of poverty. Cognitive function is diminished by the constant and all-consuming effort of coping with the immediate effects of having little money, such as scrounging to pay bills and cut costs. As a result, people of limited means are more likely to make mistakes and bad decisions that may be amplified by, and perpetuate, their financial woes, say the Fiscal Times.

  • The mental tax that poverty can put on the brain is distinct from stress.
  • Stress is a person's response to various outside pressures that, according to studies of arousal and performance, can actually enhance a person's functioning.

"We documented similar effects among people who are not otherwise poor, but on whom we imposed scarce resources," says Eldar Shafir, a coauthor of the study. "It's not about being a poor person. It's about living in poverty."

Many types of scarcity are temporary and often discretionary, Shafir says.

  • For instance, a person pressed for time can reschedule appointments, cancel something or even decide to take on less.
  • "When you're poor you can't say, 'I've had enough, I'm not going to be poor anymore.' Or, 'Forget it, I just won't give my kids dinner, or pay rent this month.' Poverty imposes a much stronger load that's not optional and in very many cases is long lasting. It's not a choice you're making; you're just reduced to few options. This is not something you see with many other types of scarcity."

Source: "Does Poverty Lead to Poor Decision Making?" Fiscal Times, August 30, 2013.


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