Friday, September 18, 2009

Psychology of poverty and temptation – Chris Blattman

Psychology of poverty and temptation – Chris Blattman:
"Some people are not only impulsive and impatient, but inconsistently so. they care a lot about a dollar today versus tomorrow, but could care less between getting a dollar either 10 or 11 days from now. Economists call this ‘hyperbolic discounting’.

Both behaviors–impatience and time inconsistency–could be a source of persistent poverty.

Or not. Abhijit Banerjee [and] Sendhil Mullainathan....look at a number of seemingly unusual behaviors by the very poor–from exorbitant rates of short-term borrowing to the low take-up of small, high-return investments. Impatience cannot explain the patterns, they say....

Another view: we’re all impulsive and impatient in the same way, but over a narrow range of goods that are quickly and cheaply satisfied. If you’re poor, these temptations are a big fraction of your income....Temptations are declining in income."

Here is the actual paper.

New Required reading for my Behavioral Finance class!

H/T to SimoleonSense which is definitely one of my favorite blogs out there. Be sure to check it out!

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