poverty homeless dirty 311.
(photo credit: Marc Israel Sellem)
Why are the poor poor? Is it because they lack opportunities and are locked into
poverty? Or is it because they make bad decisions? These are questions that have
occupied scholars and social activists for centuries, and the answers often tend
to classify people on a left-right spectrum.
An influential group of
social scientists, including Princeton psychology professor Eldar Shafir and
Harvard economics professor Sendhil Mullainathan, assert that this dichotomy is
misleading. They claim that poverty itself impels people to make bad
The idea is that bad decisions are not a result of low ability
levels or an impatient nature, but rather of the stress and time pressure of
Their experiments show that well-off people also make
poor decisions when subject to stress, but they are better able to insulate
themselves from pressures. The poor people are so busy worrying about today that
they can’t think effectively about tomorrow; i.e, poverty makes them “penny wise
and pound foolish.”
“People with the greatest need to think about the
future don’t have the leisure or emotional capacity to do so,” Shafir told
. “The very essence of poverty complicates decisions and makes immediate
needs so urgent that you start making wrong choices.
aren’t any different from anyone else’s, but they occur more frequently due to
the element of stress, and their implications are much greater.”
policy solution these researchers propose is giving poor people a “nudge” to
make choices that are usually the best. A Time
magazine article on this approach
gave a few examples. For instance, instead of relying on the insight that
education will help a poor youth’s earning prospects in the future, he or she
could be offered a cash prize for a high-school diploma, or automatically be
enrolled in a savings plan.
This approach is interesting, but it is hard
to square with reality. The most harried and stressed people are not the poor
but the middle-class two-earner families. A highly disproportionate number of
poor people are unemployed or underemployed and have plenty of time on their
hands to consider their financial future.
It’s hard to believe the main
reason poor people don’t save is that the benefit of saving never occurred to
them. Probably it’s because it doesn’t make that much sense to save when your
income is very low.
You save when you think that tomorrow you will be
making less than today, but that’s not very likely when you’re out of a
That doesn’t mean the nudge approach lacks merit.
could be correlated with poor ability to make decisions for other reasons
besides stress and time pressure. It could be because people with poor ability
to plan are likely to end up poor; people have a tendency to conform with their
surroundings, and poor people tend to be surrounded by people whose
circumstances keep them poor.
Many of these nudge solutions have been
tested in poor countries by development economists such as Esther Duflo of MIT,
and some have been found quite effective.
The idea that poverty is a
state of mind that tends to perpetuate “poor” decisions is a productive insight.
But the idea that the reason for this is stress, rather than habit, does not
seem as promising.
firstname.lastname@example.org Asher Meir is research
director at the Business Ethics Center of Jerusalem, an independent institute in
the Jerusalem College of Technology (Machon Lev).