Decision Making Under Poverty: A Behavioral Research Program
A growing body of evidence in behavioral economics suggests that people's behavior differs in systematic and predictable ways from the model of rationality assumed by classical economists. However, empirical studies in behavioral economics have tended to focus on people of ordinary means, to the exclusion of people at economic extremes. Might people in poverty -- who have few resources and limited experience in economic decision-making -- display different behavioral patterns than others?
Marianne Bertrand, Sendhil Mullainathan, and Eldar Shafir have created an ambitious research program that will look at the perceptions, attitudes, and decisions of those living in poverty. They will conduct experimental studies of mental accounting, discount rates, and risk and loss aversions, asking respondents at a soup kitchen, for example, to choose between cashing a check nearby at a cost of $5 or traveling 30 minutes to cash it for free. In addition, they will test the effect of bank accounts on overall savings among the poor by working with a group of individuals enrolled in a financial literacy program and encouraging them to open savings accounts, while holding another group in the program as a control.
- Mullainathan, Sendhil, Eldar Shafir and Marianne Bertrand. 2004. "A Behavioral Economics View of Poverty," The American Economic Review, 94 (2), 419-423 (PDF)
- Mullainathan, Sendhil, Eldar Shafir and Marianne Bertrand. 2006. "Behavioral Economics and Marketing in Aid of Decision Making Among the Poor," Journal of Policy Making and Marketing, 25 (1), 8-23 (PDF)
- Sendhil Mullainathan and Eldar Shafir, "Savings Policy and Decisionmaking in Low-Income Households," in Insufficient Funds, eds. Michael Barr and Rebecca Blank, 121-146 (New York, NY: Russell Sage Foundation, 2011).