The Poverty of Decision Making

Here's an excerpt from an article published by The New Indian Express that features our work on the impact of poverty on cognitive function.

What remains key to how we make decisions is the context that we are in, according to a recent study that helps us understand how decision-making works in the context of poverty. The study, Poverty Impedes Cognitive Function, by Harvard economist Sendhil Mullainathan along with Anandi Mani (Warwick), Eldar Shafir (Princeton) and Jiaying Zhao (UBC), discovers that the state of being poor itself may be constraining a person’s mental capabilities from making wise choices, and that the magnitude of impact of bad choices is larger in the case of the poor, oftentimes with grave implications. Therefore, it is not that poor people make bad decisions; rather, it is the context the poor inhabit that makes them choose badly. Poverty drains poor people’s energy, depletes their cognitive resources, and compels them to make sub-optimal decisions.

The poor are often associated with a range of self-defeating behaviours, chief among which is poor financial management. Through a series of laboratory and field studies consisting of experiments conducted with shoppers at a New Jersey mall and with farmers in South India, the researchers determine that poverty exerts a certain cognitive load on individuals and taxes their mental bandwidth whenever they think about financial problems.

When experiencing scarcity repeatedly, the effect can prove to be disastrous with potential long-term effects as there is “less effective bandwidth” while making important decisions. What gets impaired is not the inherent capability, but really how much of that capability is available at the time of making decisions. The size of the impact of such scarcity is equivalent to losing about 13 IQ points or losing one night’s sleep!

Extensive studies in neuroscience point to the central role of the human brain’s frontal cortex in the management of complex cognitive processes such as attention, motivation, decision-making, and long-term planning; any deficits in the functioning of the frontal cortex, say resulting from the stress of impending tasks, can impair any of the processes.

This correlates to the study’s finding that poor people’s brains have to work harder than the brains of their rich counterparts because of the cognitive load experienced owing to poverty. While the poor did as well as the rich in financially “easy” scenarios, they did significantly worse than the rich in financially “hard” scenarios simulated in the experiments to test cognitive control.
A non-profit research organization founded by Sendhil Mullainathan
and other prominent behavioural economists

Read the rest of the article here: bit.ly/1cA1Mhe
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