The Persistence of Poverty in the Context of Financial Instability: A Behavioral Perspective 2015

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Article first published online: May 19, 2015

Lisa A. Gennetian & Eldar Shafir

What was the genesis of the idea for your research/paper?

Nearly 5 years ago I was fortunate to be introduced to Sendhil Mullainathan and Eldar Shafir, both of whom had been collaboratively engaging on issues of scarcity and poverty and the ways in which lack of slack in time and money strains cognitive resources. At about the same time, Nudge was published by Richard Thaler and Cass Sunstein and the concept of choice architecture in the design of programs and policies that could dramatically alter behavior entered the public lexicon and debate.  These ideas had not yet been translated into the forum of social policy scholarly, intervention, or evaluation work and this is in part what sparked the paper. Recognizing that no one idea can solve all problems of poverty, we focused on the nature of constant juggling to make ends meet and the push-pull that financial instability imposed on mental resources. This was especially relevant in the context of the 2008 Great Recession (which overlapped with the evolution of our work) and the growing reality of economic life, but also because income shocks among the poor, particularly if not expected or predictable, could have high long-term costs by triggering coping mechanisms that are very locally driven, and can lead to myopic decisionmaking. Our initial plan was to embark on a series of empirical investigations in the U.S. to build evidence to support (or, refute) hypotheses about the strain of poverty on cognitive resources, and simultaneously whip up a concept paper. Well, five years later, and one author down we are pleased to see a home for this work in JPAM.

What is the main conclusion that becomes evident from your research? (Or, what is your main takeaway?)

Most scholars emerging from the traditional social science disciplines are trained very well to arrive at rich hypotheses about the causes or reasons for poverty. This theorizing—whether rooted in hypotheses from human capital, personal choices, culture/norms, or social capital frameworks—has contributed to our understanding of the lives of income poor individuals, families and children, and guided policy making. One common theme across these prevailing theories is that (most) individuals make and follow through with their decisions as long as opportunities are made available, accessible and affordable. The behavioral perspective turns these perspectives around and instead proposes that misguided decisions can often be a consequence rather than the cause of poverty. Thinking about the poor as having an overburdened mind is a completely different way of thinking about why poverty persists and what can be done about it.

What are some of the more interesting or surprising findings/conclusions did you find in the process of bringing this together?

Conceptually, the behavioral lens broadens the framework for understanding decisionmaking in the context of poverty by incorporating mental processes related to attention, self-control and more generally, cognitive load. The behavioral lens also offers a completely new set of tools for design or redesign of programs and policies. The low and erratic rates of planning, program participation, and follow-through often viewed by policymakers as structural hurdles or else as failures of understanding or motivation, are now viewed as potentially a result of distraction or depleted cognitive resources. This implies, for example, that rather than assuming that parents are not showing up at workshops because they cannot pay for transportation (a structural issue), there may be alternative possibilities related to lack of attention due to day to day distractions, issues of mistrust, or inaccurate valuations of future rewards which in turn suggest different types of program approaches such as reminders, and reframing of messages. The behavioral lens also suggests that economic stability and mobility might be improved with new policies such as short-term earnings insurance, and quick access to emergency funds. Economists have long thought about topics that fall under the behavioral bucket such as hyperbolic discounting; and social psychologists have long thought about concepts such as trust and social norms as explanations for human behavior. What is new here is bringing concepts of perception, cognition and other features of human information processing to the analysis of everyday economic decisions, let’s call it broadening the science and empirical study of decisionmaking, and this has potentially powerful implications for creative solutions to address poverty.

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Author's Bio

Gennetiansm


Dr. Gennetian’s current research on the lives of income poor families and children focuses on the influence of unstable income on family and child well-being, the income and employment experiences among Hispanic households and the implications for income-poor Hispanic children, and the ways in which insights from behavioral economics can improve the design of social policies and programs. Her empirical work exploits a variety of quasi- and related experimental methodological approaches to identify causal impacts.

Dr. Gennetian also engages in many primary research studies, that often include tests of programs and policies in practice, serving as Principal Investigator on large federally funded initiatives such as the National Study of Early Care and Education; the Moving to Opportunity housing voucher and neighborhood poverty study; and, the Behavioral Interventions to Advance Self-Sufficiency project piloting behavioral economic approaches in social programs.

She is currently collaborating with social- and neuroscientists to launch an experimental study to understand the impact of unconditional cash transfers, or enhanced income, on the early brain structure and brain function of very low income infants and toddlers.

 

Shafirsm
Eldar Shafir is a behavioral scientist, and the co-author of Scarcity: Why Having Too Little Means So Much (with Sendhil Mullainathan). He is the William Stewart Tod Professor of Psychology and Public Affairs at Princeton University Department of Psychology and the Woodrow Wilson School of Public and International Affairs; and co-founder and Board Member of ideas42, a non-profit organization that uses behavioral science to help solve tough social problems.

His areas of expertise include reasoning, judgment, and decision-making, and issues related to behavioral economics, with an emphasis on descriptive studies of how people make judgments and decisions in situations of conflict and uncertainty.

A $10 million gift has been given to establish the Daniel Kahneman and Anne Treisman Center for Behavioral Science and Public Policy at Princeton, enabling the University to strengthen its leading role in this emerging field and improve the development of effective policymaking. Eldar Shafir, the William Stewart Tod Professor of Psychology and Public Affairs, will serve as the center's first director.

Click here to learn more about the Kahneman and Treisman Center.

 
 
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