Psychology of poverty and temptation

[phk]

Some people are impulsive and impatient; they prefer a dollar or a donut today far more than a dollar or a donut tomorrow, so much so that they’re willing to give up shocking amounts of dollars and donuts tomorrow for just one today. This is one reason, some say, that we see such high interest rates for short-term borrowing, from New York to Calcutta.

Some people are not only impulsive and impatient, but inconsistently so. they care a lot about a dollar today versus tomorrow, but could care less between getting a dollar either 10 or 11 days from now. Economists call this ‘hyperbolic discounting’.

Both behaviors–impatience and time inconsistency–could be a source of persistent poverty.

Or not. Abhijit Banerjee presented a new paper written with MIT colleague Sendhil Mullainathan. They look at a number of seemingly unusual behaviors by the very poor–from exorbitant rates of short-term borrowing to the low take-up of small, high-return investments. Impatience cannot explain the patterns, they say. The impatience approach also requires the poor think differently than the rest of the population.

Another view: we’re all impulsive and impatient in the same way, but over a narrow range of goods that are quickly and cheaply satisfied. If you’re poor, these temptations are a big fraction of your income. If you’re even somewhat wealthy, they are not. Temptations are declining in income.

This approach has a great deal in common with hyperbolic discounting, but is empirically distinct (and has very different policy implications). Parsing out and testing these subtleties strikes me as one of the most important frontiers in the study of poverty. Declining temptation, if true, could explain all sorts of odd behaviors. With more than a few Uganda and Liberia surveys on the horizon, I’m now scheming ways to test whether it’s true.

Warning
This is pretty dense material, if you haven't been fully acquainted with microeconomic theory.
Link: http://www.econ.yale.edu/seminars/develop/tdw09/banerjee-0907pdf.pdf

[War on Want]

I remember reading an article on the fact that being poor is very time consuming because of the long waiting times for bus routes, the amount of time it takes to do errands that the middle class take for granted, because we have the appliances to do these errands etc. The poor also have to spend more money just to exist because local grocers will charge more for less quality food. The poor have much less time to live life and have much more stress. They also have lower life expectancies. I think it might be possible that this would account for their impatience when it comes to finances.

[Vepres]

I remember reading an article on the fact that being poor is very time consuming because of the long waiting times for bus routes, the amount of time it takes to do errands that the middle class take for granted, because we have the appliances to do these errands etc. The poor also have to spend more money just to exist because local grocers will charge more for less quality food. The poor have much less time to live life and have much more stress. They also have lower life expectancies. I think it might be possible that this would account for their impatience when it comes to finances.

Of course, if they were more patient, than they would have more time to live life and be less stressed. Gah! Catch 22!