The Persistence of Poverty in the Context of Economic Instability: A Behavioral Perspective

Abstract

We review recent findings regarding the psychology of decision-making in contexts of poverty, and consider their application to public policy. Of particular interest are the oft-neglected psychological and behavioral consequences of economic scarcity and instability. The novel framework highlights the psychological costs of low and unstable incomes, and how these can transform small and momentary financial hurdles into long-lasting poverty traps. Economic instability, we suggest, not only has obvious financial ramifications, but it also exacerbates the need for constant focus and attention, and can distract from the very opportunities otherwise designed to alleviate the effects of poverty. We describe a variety of alternative public policy strategies that emerge from this new behavioral perspective that are not readily apparent from conventional theories that permeate the design of social programs.