A Behavioral-Economics View of Poverty

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 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.