Strategy. Innovation. Brand.

Does Poverty Cause Poverty?

Where can I buy 13 IQ points?

Which of the following propositions is more likely correct?

  1. People make bad decisions and, partially as a result, become poor.
  2. People who are poor make bad decisions and, partially as a result, stay poor.

If you had asked me about this a week ago, I’m not sure which proposition I would have chosen. But then I read, “Poverty Impedes Cognitive Function” by Anandi Mani et. al. in the August 30th edition of Science. The editorial summary is simple and striking: “Lacking money or time can lead one to make poorer decisions, possibly because poverty imposes a cognitive load that saps attention and reduces effort.”

The authors conducted two parallel studies. One was essentially a laboratory study conducted with people in New Jersey. The other was a field study conducted among Indian sugarcane farmers.

In the New Jersey study, participants were asked to consider various financial problems that might arise in their personal lives. They were then asked to describe how they would reason through a solution. At the same time (or immediately after) they were given tests of cognitive function. The tests measured fluid intelligence – “the capacity to think logically and solve problems in novel situations…”.

The researchers correlated family income to cognitive performance. They also repeated the tests under different conditions to control for extraneous factors such as math anxiety. The general conclusion was clear: “The poor performed worse than the rich overall.”

In India, the researchers used a “natural experiment” – sugarcane farmers are poor before their annual harvest and rich afterwards. (The participants earned at least 60% of their income from sugarcane). The researchers administered cognitive function tests both pre- and post-harvest. The results were quite similar to the New Jersey tests: the farmers performed significantly better after the harvest than before. (Again, the researchers performed a number of statistical manipulations to control for extraneous variables, such as anxiety and nutrition).

What’s it all mean? The authors sum it up nicely: “Being poor means coping not just with a shortfall of money but also with a concurrent shortfall of cognitive resources. … The findings are not about poor people but about any people who find themselves poor.”

How much cognitive load does poverty impose? The authors compare their findings with other research on cognitive loads. They conclude that the deficits they measured were roughly equivalent to the cognitive deficit imposed by missing an entire night’s sleep — roughly 13 IQ points. Think about staying up all night and then trying to make complicated decisions. Your ability to make good decisions would probably suffer significantly. That’s essentially the same load that poverty imposes.

The authors conclude by discussing various policy implications. I think there are branding implications here as well. “Poor people” have a brand just like Republicans or Democrats or college professors have distinct brands. To some observers, of course, the “poor brand” is largely negative. It may just be time to take studies like these and begin re-branding what it means to be poor.

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