26 Pages Posted: 11 Nov 2016 Last revised: 25 Feb 2017
Date Written: February 22, 2017
Why do the poor make shortsighted choices in decisions that involve delayed payoffs? Foregoing immediate rewards for larger, later rewards requires that decision-makers (a) believe future payoffs will occur and (b) are not forced to take the immediate reward out of financial need. Low-income individuals may be both less likely to believe future payoffs will occur, and less able to forego immediate rewards due to higher financial need; they may thus appear to discount the future more heavily. We propose that trust in one’s community—which, unlike generalized trust, we find does not covary with levels of income—can partially offset the effects of low income on myopic decisions. Specifically, we hypothesize that low-income individuals with higher community trust make less myopic intertemporal decisions because they believe their community will buffer, or cushion, against their financial need. In archival data and lab studies, we find that higher levels of community trust among low-income individuals lead to less myopic decisions. We also test our predictions with a two-year community trust intervention in rural Bangladesh involving 121 union councils (the smallest rural administrative and local government unit) and find that residents in treated union councils show higher levels of community trust and make less myopic intertemporal choices than residents in control union councils. We discuss the implications of these results for the design of domestic and global policy interventions to help the poor make decisions that could alleviate poverty.
Keywords: temporal discounting, poverty alleviation, trust
JEL Classification: I3, D81
Suggested Citation: Suggested Citation
Jachimowicz, Jon M. and Chafik, Salah and Munrat, Sabeth and Prabhu, Jaideep and Weber, Elke U., Community Trust Reduces Myopic Decisions of Low-Income Individuals (February 22, 2017). Columbia Business School Research Paper No. 16-85. Available at SSRN: https://ssrn.com/abstract=2867948 or http://dx.doi.org/10.2139/ssrn.2867948