I write a lot on this blog about economists’ assumptions about human behavior, and when these assumptions are useful to understand reality and when they are not. For instance, a while back I touched on the assumption of “rationality”, which for economists has a strict mathematical definition and is needed to make certain clean, elegant microeconomic models work. Unfortunately, some people take this and other theoretical assumptions beyond their original purpose, asserting, for instance that every human action in real life must be motivated by a rational thought process all the time.
Most of us are observant enough to know that at least sometimes, human beings do not, in fact, behave rationally. Addiction is an often used as example. I’m sure you can construct a model showing how a person could behave rationally and still drink himself into oblivion. But it’s much easier simply to admit to oneself that irrational behavior exists in the world, and basic models based based on an assumption of rationality are limited.
The question is, Just how widespread is our irrationality? That’s the question asked by many behavioral economists and psychologists who’ve attempted to document and codify all sorts of irrational things that human beings tend to do. (Dan Ariely’s best seller Predictably Irrational, though a few years old now, is a great book for a summary of this line of research.) I tend to believe irrational behavior can be found almost everywhere, and understanding this can help us improve ourselves and our society. A few months back, for instance, I made the argument that certain types or consumer loans preyed on individuals’ irrationality, specifically their impulsiveness and lack of understanding of finance. The poor are prime targets, in that they may be less likely to have had some basic financial education, and are naturally more susceptible to the “Interest Free Loans!” thing and other scams, perpetuating the imaginary dream of unlimited access to money without consequences.
I’m not at all the first to wonder about the decisions of poor people, and whether these decisions are rational or irrational, and how they influence their lives. One of my favorite economists is a young researcher at Harvard named Sendhil Mullainathan, whose area of focus is exactly this. One of the main conclusions of Mullainathan’s work is that not only is it unreasonable to expect a typical person to make perfectly rational economic choices, but to expect this of the poor is even more unreasonable, because of the incredible mental toll of poverty. Here‘s Mullainathan in his own words, describing an experiment among rural farmers in India:
Some people argue that the poor make terrible choices and do so because they are inherently less capable. But our analysis of scarcity suggests a different perspective: perhaps the poor are just as capable as everyone else. Perhaps the problem is not poor people but the mental strain that poverty imposes on anyone who must endure it…
We measured farmers’ mental function — on what psychologists call fluid intelligence and executive control — one month before and one month after harvest. And the effects were large: preharvest I.Q., for example, was lower by about nine to 10 points, which in a common descriptive classification is the distance between “average” and “superior” intelligence. To put that in perspective, a full night without sleep has a similar effect on I.Q.
To summarize the passage above (with my own twist): Not only is the ordinary person bad at making completely rational decisions to optimize his or her own welfare, but a poor person might be even worse at making these decisions because of the immense stress that a life of poverty entails.
But there is another explanation for why poor people make the decisions they do, one that is no less depressing. This one follows on research from neuroscientists Joseph W. Kable and Joseph T. McGuire at UPenn, who hypothesized that our previous experiences shape how impulsive we are. To illustrate this, they ran a series of games giving the participants a choice between a small payoff now or a bigger payoff later, but for some, they intentionally varied how long people ended up waiting if they chose to delay the reward. Here‘s what they found:
[W]hile the [participants] seeing the regular intervals looked like the very model of persistence and self-control, those seeing the erratic intervals grew increasingly less persistent over time — even if they had initially been quite patient. The uncertainty of the reward timing was itself enough to push them toward behavior that looked increasingly impulsive.
What does this have to do with poverty? After a lifetime in which misfortune is the norm, it’s possible that those who’ve had the most challenging lives have a tougher time postponing satisfaction now for the never-before-fulfilled promise of a payoff later. They simply can’t imagine a causal relationship between deferred gratification and reaping the rewards down the line, because those rewards have never before materialized. Here’s how a recent Atlantic article put it, using the metaphor of waiting endlessly for a late-arriving train:
The inescapability of poverty weighs so heavily on the [individual] that s/he abandons long-term planning entirely, because the short term needs are so great and the long-term gains so implausible. The train is just not coming.
The most obvious takeaway that I see from all this research is that we need to stop patronizing poor people in our policies and in our speech, because the poor often bear a crushing emotional weight of stress and hopelessness. Pulling oneself up by one’s bootstraps is laudable, but we need to live in reality in terms of how immense a task that is for some people.
But the other takeaway is that, whether you think poor people’s decisions are driven by irrationality or a perfectly rational reaction to a lifetime of disappointment, we should be actively seeking to create better conditions for the least fortunate to improve their lot. Baha’u’llah tells us: “The poor in your midst are My trust; guard ye My trust, and be not intent only on your own ease.” It is a spiritual blessing for us to have the opportunity to help those less fortunate. But recent research tells us that there may also be a scientific argument for offering a helping hand, one that’s stronger than we previously thought.
Well, what now? If you subscribe to the Mullainathan line of thinking — that it’s unrealistic to expect human beings, and especially the poor, to make perfectly rational decisions — then perhaps we should have policies that curb the behavior of individuals and firms who prey on human irrationality (for instance, predatory lenders and retailers who push buy-now-pay-later consumer fantasies).
On the other hand, if we take the Kable and McGuire view — that a lifetime of disappointment breaks down individuals’ ability to strive for something better — then the best thing we can do for those who are less fortunate is to give them a modicum of hope. This is where the spiritual and economic aspects of being a human being intersect. What if there were a costless way to mitigate the emotional toll of poverty, and to help the poor maintain enough optimism to make good decisions and invest in the future?
Well, I’m inclined to believe that certain features of spiritual life — prayer and meditation, adherence to a moral code, a supportive religious community — can help. Even without religion per se, I wonder if just having the support of a loving network of family or friends can make a difference in an individual’s outlook on life. Something as simple as a cup of coffee with an old friend or a friendly visit from a neighbor may not sound like tools to help eradicate poverty, and should never take the place of more technical solutions. But perhaps they need to be considered part of the arsenal.