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

26 Pages Posted: 30 Aug 2019 Last revised: 8 Jun 2020

See all articles by Shuguang Jiang

Shuguang Jiang

Shandong University - Center for Economic Research

Qian Wei

Shandong University

Luyao Zhang

Duke Kunshan University

Date Written: August 23, 2019

Abstract

We provide a new perspective to understand poverty traps by researching the effect of psychological poverty on economic decisions. Our innovative sample consists of two pools of subjects: impoverished students and normal students from the same university. Subjects were first randomly assigned either to a treatment group that induced them to think about finances or to a control group. Then all subjects performed three tasks of economic decisions. Our results show that priming in general significantly intensifies the poor’s choices, with fewer total payoffs, higher response times, and favoring “pinching pennies” over “making money,” all of which can perpetuate poverty traps.

Keywords: Poverty Trap, Inequality, Cognitive Functions, Scarcity, Behavioral Experiment

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 Inequality Traps (August 23, 2019). Available at SSRN: https://ssrn.com/abstract=3441554 or http://dx.doi.org/10.2139/ssrn.3441554

Shuguang Jiang

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)

Duke Kunshan University ( email )

No. 8 Duke Avenue
Kunshan, Jiangsu 215316
China

HOME PAGE: http://scholars.duke.edu/person/luyao.zhang

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