How Poverty Changes Your Mind-Set
Understanding psychology may be key to addressing the problem.
How Poverty Changes Your Mind-SetHow Financial Stress Can Impact Your Thinking
Chicago Booth researchers are investigating how scarcity shapes decision-making.
Having money can mean not having to worry about money. But when wealth is scarce, the stress can change the way we think and the decisions we make.
Working through a difficult financial problem produces a cognitive strain that’s equivalent to a full night’s sleep lost, according to a study coauthored by Chicago Booth’s Sendhil Mullainathan.
Research by Mullainathan, Chicago Booth’s Anuj K. Shah, and Princeton’s Eldar Shafir suggests that having fewer resources can cause cognitive fatigue, forcing poorer people to expend more mental energy on things that don’t stress wealthy people. Having fewer resources may lead poorer people to make better financial decisions, but sometimes people are punished for actions that stem from the experience of poverty.
“Some say you really have to understand the broad social structure of being poor, and what people do and don’t have access to. Others say that poor individuals have different values or preferences. We stepped back and asked: ‘Is there something else going on?’”
— Anuj K. Shah
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