Money Maker or Penny Pincher: On the Psychological Foundation of Poverty Traps
25 Pages Posted: 30 Aug 2019
Date Written: August 23, 2019
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: Suggested Citation