Poverty and Self-Control

By B. Douglas Bernheim, Debraj Ray, Sevin Yeltekin. 2013

243 citations recorded by the source corpus.

The absence of self-control is often viewed as an important correlate of persistent poverty. Using a standard intertemporal allocation problem with credit constraints faced by an individual with quasi- hyperbolic preferences, we argue that poverty damages the ability to exercise self-control. Our theory invokes George Ainslie's notion of "personal rules," interpreted as subgame-perfect equilibria of an intrapersonal game played by a time-inconsistent decision maker. Our main result pertains to situations in which the individual is neither so patient that accumulation is possible from every asset level, nor so impatient that decumulation is unavoidable from every asset level. Such cases always possess a threshold level of assets above which personal rules support unbounded accumulation, and a second threshold below which there is a "poverty trap": no personal rule permits the individual to avoid depleting all liquid wealth. In short, poverty perpetuates itself by undermining the ability to exercise self-control. Thus even temporary policies designed to help the poor accumulate assets may be highly effective. We also explore the implications for saving with easier access to credit, the demand for commitment devices, the design of accounts to promote saving, and the variation of the marginal propensity to consume across classes of resource claims.

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Citations in the corpus

Behavioral Design: A New Approach to Development Policy (2014, background): “Within development, for example, it has provided fresh insights into crucial questions about why the poor stay poor (see Banerjee and Mullainathan 2008; Bernheim et al. 1999, 2013).”
Locus of Control and Savings (2016, background): “The key implication of these expanded, behavioral models is that revealed preferences no longer necessarily equal normative preferences opening the door for paternalistic regulation to help people avoid choices that they will later regret (Thaler & Shefrin, 1981; O’Donoghue & Rabin, 1999; Thaler & B”
The Welfare Economics of Default Options in 401(k) Plans (2015, methodology): “Because a change in the default rate does not alter the set of workers for whom χ(f ) factors into the calculation of EV , the curves relating EV to the default rate will, to a reasonable approximation, appear as parallel shifts of the EV S A curve (compare (9) and (10) to (7) and (8) with κ(f ) = 0”
Parenting style as an investment in human development (2018, background): “This perspective is consistent with the evidence that poverty limits self-control (Bernheim et al. 2015), the ability to parent (McLoyd 1998; Bradley and Robert 10 We simplify notation by considering x to be a “basket of goods” priced by an index p. 11 Our choice of attention-augmented earnings…”