Some Consequences of Having Too Little

Abstract

Poor Choices Two categories of reasons for why poor people make economically unsound choices, such as obtaining a payday loan at an extraordinarily high rate of interest, reflect, first, the environment: Poor people are more likely to be living in poor neighborhoods with higher rates of crime and lower rates of social services. Second, they reflect the individual: People are poor in part because of their own psychological dispositions toward impatience and impulsiveness. For both cases, obtaining causal evidence in controlled experiments has been challenging. Shah et al. (p. 682 ; see the Perpective by Zwane ) propose a third category of reasons whereby being poor exerts a bias on cognitive processes and provide evidence for it in laboratory experiments performed in scenarios of scarcity.