26 January 2015
Why does a mother from a poor African village not send her daughter to school, but instead marries her off to an old man as a second or third wife? This way poverty is inherited from parent to child. Or why does a boy from a remote village in a developed country, such as a Finland, drop out from school and stay unmarried for the rest of his life in the declining countryside? How could an economist contribute to answering these questions?
The answer to the first question is of course that the poor family from a developing country most probably cannot afford to educate their child. However in the case of a young man from a Nordic country the answer is not so obvious. Poverty in itself does explain some of this behaviour, but new economic research incorporating theories from psychology implies that there are other important factors behind these decisions.
Poverty takes up intellectual resources
One often-cited reason the poor tend to stay poor is that they lack the specific skills and knowledge that are needed for economic success, and due to inherited attributes their children are also poor. However, Mani et al. (2013) show that that this causality also works the other way round: poverty itself eats away intellectual resources. They study two very different sample groups--Indian farmers and customers from a shopping center in Boston--to look further into this effect.
The participants from both groups were asked to do a short IQ test, as well as a test measuring their cognitive control at the beginning of the study. In India the same farmers were given the tests just after harvest (when the farmers are relatively wealthy) and just before the new farming season (when the farmers have the least income). The results showed that the farmers performed significantly worse just before the new farming season when they lived in relative poverty. The customers at the shopping center, on the other hand, were asked to state their income as well as to imagine a distressing money-draining situation within the same testing situation. The poor and the rich performed the same in these tests but poor people that were reminded of distressing economic situations performed significantly worse compared to the rich.
The cause for these results is easy to understand: poverty takes up our attention, and our intellectual capacity is limited in the same way as our budgets are. The required attention and worrying eats away at our intellectual resources...