A Behavioral-Economics View of Poverty

"A Behavioral-Economics View of Poverty," with Marianne Bertrand and Eldar Shafir, American Economic Review Papers and Proceedings, May 2004, 419-23.

Standard theorizing about poverty falls into two camps. Social scientists regard the behaviors of
the economically disadvantaged either as calculated adaptations to prevailing circumstances, or as
emanating from a unique “culture of poverty,” rife with deviant values. The first camp presumes
that people are highly rational, that they hold coherent and justified beliefs and pursue their goals
effectively, without mistakes, and with no need for help. The second camp attributes to the poor a
variety of psychological and attitudinal short-fallings that render their views often misguided and
their choices fallible, leaving them in need of paternalistic guidance.  

We propose a third view. The behavioral patterns of the poor, we argue, may be neither perfectly
calculating nor especially deviant. Rather, the poor may exhibit the same basic weaknesses and
biases as do people from other walks of life, except that in poverty, with its narrow margins for
error, the same behaviors often manifest themselves in more pronounced ways and can lead to
worse outcomes. In what follows, we illustrate the kinds of insights that might be gained from a
behaviorally more realistic analysis of the economic conditions of the poor, and we propose that
alternative policies for alleviating poverty be considered.