"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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