Money Maker or Penny Pincher: On the Psychological Foundation of Poverty Traps

25 Pages Posted: 30 Aug 2019

See all articles by Shuguang Jiang

Shuguang Jiang

Zhejiang University of Finance and Economics; Shandong University - Center for Economic Research

Qian Wei

Shandong University

Luyao Zhang

East China Normal University (ECNU)

Date Written: August 23, 2019

Abstract

Evidence in psychology documents the effects of poverty on cognitive function. We explore further whether such effect translates into significant behavioral discrepancy on economic decisions. We hypothesize that psychological poverty triggers attention in favor of “pinch pennies” while against “make money” and experimentally test it. Our result shows that priming to induce thoughts about finances increases the choices of “pinch pennies” among the poor but not in well-off participants. Meanwhile, priming worsens time management and performance in decision tasks. Since both identified sources can further perpetuate poverty, our results attend to alleviating the psychological burdens of the poor and triggering internal motivations to make money in policy consideration.

Keywords: Poverty Trap, Cognitive functions, Scarcity, Make Money and Pinch Pennies

JEL Classification: D01, O12, D91

Suggested Citation

Jiang, Shuguang and Wei, Qian and Zhang, Luyao, Money Maker or Penny Pincher: On the Psychological Foundation of Poverty Traps (August 23, 2019). Available at SSRN: https://ssrn.com/abstract=3441554 or http://dx.doi.org/10.2139/ssrn.3441554

Shuguang Jiang

Zhejiang University of Finance and Economics ( email )

Xueyuan Street No.18,Xiasha Higher Education Park
Hangzhou, Zhejiang Province 310018
China

Shandong University - Center for Economic Research ( email )

Jinan, Shandong 250100
China

Qian Wei

Shandong University ( email )

27 Shanda Nanlu
South Rd.
Jinan, Shandong 250100
China

Luyao Zhang (Contact Author)

East China Normal University (ECNU) ( email )

North Zhongshan Road Campus
3663 N. Zhongshan Rd.
Shanghai, 200062
China

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