Consequences of Poverty on Economic Decision-Making: Assessing the Verisimilitude of the Cognitive Mechanism.

Matúš Adamkovič

doi:10.3389/fpsyg.2020.00171

Abstract

The paper aims to assess the verisimilitude of the hypothesized model of poverty perpetuation which links socioeconomic situation and economic preferences via cognitive load, executive functions, and intuitive/deliberative decision-making styles. In order to test the model against the data, three studies (exploratory, confirmatory, and replication) were conducted with a total sample size of 1182 participants. The results showed that neither the proposed model as a whole found the required support in the data nor the consequent, theoretically justifiable, respecifications improved its fit so that it could be deemed acceptable. Simultaneously, the dyadic relationships between the variables were mainly found to be weak. The sensitivity analysis revealed that the majority of the observed estimates varied substantively depending on the arbitrary analytic decisions of the researcher. In summary, the hypothesized cognitive mechanism does not explain what economic decision-making depends on nor why people fall into poverty traps. The paper discusses several plausible sources of the negative findings and possible directions for future research are suggested.

Highlights

Poverty is one of the greatest challenges facing society, persisting in spite of efforts to alleviate it
Despite the existing assumptions that a poorer economic situation leads to less rational economic decision-making (e.g., Griskevicius et al, 2011; Brown et al, 2015; Pepper and Nettle, 2017), the data have indicated that the binary relationship between economic situation and economic preferences is weak and have no substantial significance
Haushofer and Fehr (2014) emphasized the need to study the factors which potentially contribute to poverty perpetuation

Summary

Introduction

Poverty is one of the greatest challenges facing society, persisting in spite of efforts to alleviate it. People living in poverty are said to have suboptimal economic preferences that could play an important part in poverty perpetuation (Kraay and McKenzie, 2014) Their willingness to delay gratification is claimed to be lower (see, for example, Griskevicius et al, 2011; Brown et al, 2015) and they tend to be more reluctant to take risks when a reward is involved (Haushofer and Fehr, 2014). It would be an inappropriately simplified assumption to say that such decisions are directly caused by the conditions of poverty per se. Previous research has shown that poverty is related to factors like stress

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