By Giovanna Mazzeo Ortolani
B Bias Blog
May 2, 2017

Through the psychology of poverty

What explains the differences in economic decisions amongst poor and rich individuals?

In 2014 Johannes Haushofer and Ernst Fehr, professors at Princeton and Zurich University, respectively, have written the article “On the Psychology of Poverty” for the Science magazine (original version here). They show evidence that poverty causes psychological consequences such as negative affectivity and stress with unexpected changes in economic behavior by changing individuals’ revealed preferences and leading to short-sighted and risk-averse decision making. But what are the channels through which poverty could arise and perpetuate itself? More...