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Generating Research to Better Understand the Psychology of Poverty

CEGA seeds 13 new projects exploring how poverty affects cognitive mechanisms and decision-making.

This post was written by CEGA Program Manager Kristina Hallez.

Rice farmers in Kerala, India. (Credit Mathieu Schoutteten / Flickr)

In early 2020, CEGA’s Psychology and Economics of Poverty (PEP) initiative awarded student seed funding to 13 new projects aiming to better understand the ways poverty impacts cognition and decision-making and subsequent downstream implications for health, development and economic outcomes. While the COVID-19 pandemic has posed challenges to nearly all projects, many students have been able to adjust data collection methods, shifting to virtual and phone based surveys or relocating new project sites.

Given the robust response to the initial call for proposals, CEGA has launched a new, broader round of funding, offering exploratory grants of $1,000-$10,000 for students/postdocs and $15,000-$25,000 for faculty. Please visit the funding announcement for details on how to apply by the October 16th, 2020 deadline.

We look forward to supporting a new round of projects that uncover important findings about how psychology drives certain outcomes and behaviors. Below, we describe the 13 projects funded earlier this year by category, with links to more detailed description web pages.

The role of volatility/stability

Experiencing instability, through income volatility or random weather shocks for example, can be cognitively stressful,¹ ² with possible associated effects on cognitive function and brain integrity long-term.³ PEP seed funding help us learn more about the impact of volatility on our mental states and planning for the future.

  • Luisa Cefala (Economics, UC Berkeley) and Nicholas Swanson (Economics, UC Berkeley) investigate how changes to the mental state for farmers may impact how they make decisions about soil management.
  • Alejandro Favela Nava (Agricultural and Resource Economics, UC Berkeley) and Eric Koepcke (Economics, UC Berkeley) conduct a study with data entry workers in India investigating how uncertainty affects our willingness to constrain future choices.

The role of belief formation

How does poverty affect the beliefs, expectations and aspirations that play a large role in decision-making? Poverty may negatively affect aspirations or perceptions of self-efficacy, causing people to strive for and achieve less than they are capable of.⁴ ⁵ Further, poverty may impact investments in education or healthcare because individuals do not have enough information about the possible high returns of these investments⁶ or because having less access to high-return opportunities reduces beliefs in their efficacy.⁷ Several seed projects explore these areas as well as the role of the psychological immune system which prevents us from dwelling on negative events as much or for as long as rational models might predict.⁸

  • Melissa Baker (Political Science, UC Merced) explores whether an intervention designed to enhance the psychological immune system can alleviate the emotional burden of, and potentially encourage, participation in politics in the US.
  • Julius Ruschenpohler (CEGA, UC Berkeley) works with students in Indonesia to explore mentorship, goal-setting and students’ educational aspirations.
  • Nicholas Otis (Health Policy/Economics, UC Berkeley) investigates how beliefs about the stigma around mental health treatment, and access to local information, impacts mental health service take-up in Kenya.

The role of scarcity

A growing body of work suggests that scarcity narrows attention and hampers cognitive function,⁹ ¹⁰ and that the experience of poverty and financial constraints can dampen worker productivity and earnings through attentional errors.¹¹ The following studies seek to broaden our understanding of how scarcity influences the cognitive mechanisms that mediate behavior and decision-making.

  • Ruthe Foushee (Psychology, UC Berkeley), Monica Ellwood-Lowe (Psychology, UC Berkeley) and Maxim Massenkoff (Economics, UC Berkeley) carry out research with farmers in India before and after harvest season to test whether the experience of financial hardship changes the way parents speak with their children.
  • Sandy Campbell (Haas School of Business, UC Berkeley) explores whether a way to categorically account for miscellaneous one-time costs affects how people save money in the US.
  • Saika Belal (Agricultural and Resource Economics, UC Berkeley) investigates how the psychological impact of poverty may induce impatient behavior, which can further reinforce poverty.
  • David Zuckerman (Economics, Stanford) examines whether subjects with decreased mental bandwidth — a psychological consequence of poverty — are less sophisticated about their impatience (i.e. presently biased).
  • Alejandro Martínez-Marquina (Economics, Stanford) uses a field experiment involving virtual bank accounts to explore whether investment decisions are hindered by debt and if poverty exacerbates these effects.
  • Antonia Langenhoff (Psychology, UC Berkeley) and Fiona tho Pesch (Moral Courage, Max Planck Institute for Research on Collective Goods) conduct an eye-tracking study to investigate participant attention under conditions of scarcity.
  • Rebecca Zhu (Psychology, UC Berkeley) and Helen Pitchik (Public Health, UC Berkeley) carry out exploratory research on how Kenyan toddlers from lower socio-economic backgrounds connect representational pictures to physical objects, with potentially important implications for cognitive testing in different contexts.

[1] Lichand G, Mani A. Cognitive droughts. University of Zurich, Department of Economics, Working Paper. 2020 Feb 18(341).

[2] Chemin M, De Laat J, Haushofer J. Negative rainfall shocks increase levels of the stress hormone cortisol among poor farmers in Kenya. Social Science Research Network. Available at SSRN 2294171. 2013 Jul 19.

[3] Grasset L, Glymour MM, Elfassy T, Swift SL, Yaffe K, Singh-Manoux A, Al Hazzouri AZ. Relation between 20-year income volatility and brain health in midlife: The CARDIA study. Neurology. 2019 Nov 12;93(20):e1890–9.

[4] Dalton PS, Ghosal S, Mani A. Poverty and aspirations failure. The Economic Journal. 2016 Feb 1;126(590):165–88.

[5] Wuepper D, Lybbert TJ. Perceived self-efficacy, poverty, and economic development. Annual Review of Resource Economics. 2017, 9:383–404.

[6] Delavande A. Probabilistic Expectations in Developing Countries. Annual Review of Economics, 2014 Aug. vol. 6(1):1–20.

[7] Alladi V. Sour Grapes in the Lab and Field: A Test of Access-Based Beliefs. Social Science Research Network. 2019 Jan.

[8] Gilbert DT, Pinel EC, Wilson TD, Blumberg SJ, Wheatley TP. Immune neglect: a source of durability bias in affective forecasting. Journal of personality and social psychology. 1998 Sep;75(3):617.

[9] Mani A, Mullainathan S, Shafir E, Zhao J. Poverty impedes cognitive function. Science. 2013 Aug 30;341(6149):976–80.

[10] Shah AK, Mullainathan S, Shafir E. Some consequences of having too little. Science. 2012 Nov 2;338(6107):682–5.

[11] Kaur S, Mullainathan S, Oh S, Schilbach F. Does Financial Strain Lower Productivity?. MIT Working Paper; 2019 Jul.

The CEGA blog is a platform for discussing key issues related to poverty alleviation and global development.

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