The Psychology of Poverty: Evidence from the Field

Abstract

Individuals living in poverty are less likely to save and plan for the future, behaviour traditionally attributed to liquidity constraints and the associated need to address immediate consumption. Recent work on the behavioural consequences of poverty suggests that poverty induces stress and negative affect, which themselves directly influence economic decisions. We test this hypothesis using evaluation data from a national cash transfer program in Malawi in which some eligible households were randomly assigned to receive the transfer before others. We find that cash transfer reduces stress and improves positive affect, and positive affect has a direct effect on economic decisions.