by Dan Vergano
Just being broke damages abilities to make good decisions in a way roughly equivalent to losing 13 IQ points, said a report Thursday based on decision-making experiments.
Performed in a New Jersey mall and among sugar cane farmers in India, the experiments suggest that the mental taken up with worries about being strapped explain the poor decision-making widely seen among low-income families. That includes taking costly payday loans to missing appointments.
Rather the poor being poor because they make bad decisions, they make bad decisions because they are poor.
“You and I would suffer the same way if we were broke,” says senior author Eldar Shafir of Princeton University. “It’s not just abject poverty. Once your budget is constrained, your decision-making suffers.”
In the experiments reported in the journal Science, 336 shoppers at a New Jersey mall, people with an average household income of $74,000, were presented with financial problems such as deciding how to pay for hypothetical repairs.
Looking to rule out cultural or seasonal explanations, 464 sugar cane farmers from 54 villages in the Tamil Nadu region of India were also tested. These small farmers, who are paid once yearly at varied times around the year for their harvest, were tested when they had just been paid, and were flush, and when they were two months from their next payday, and broke.
“Simply put, being poor taps out one’s mental reserves,” says of Minnesota psychologist Kathleen Vohs, in a commentary on what she calls the “eye-opening” study.
Shafir acknowledges the study results contrast with “pick yourself up by your own bootstraps” thinking about escaping poverty. “We only have so much bandwidth to make decisions and if yours is taken up daily with child care and getting to work on time when your boss yelled at you yesterday, you won’t make good decisions,” he says.
Vohs and the study authors suggest that ways to foster better decisions could include streamlining long forms and repeated appointments often imposed on the poor by unemployment agency bureaucracies and simplifying work hours and offering better access to child care.