Alleviating Poverty Doesn’t Have to Be So Hard, and Behavioral Science Can Help

Thursday, June 4, 2015

Living in poverty means not just living with less money than other people. It also means dealing with extra pressures of time, cost, and mental space. For example, someone without a bank account will often spend more money cashing a paycheck than someone who has one. Poverty has even been shown to reduce cognitive ability. When faced with a big car repair bill, people on lower incomes will test lower in a subsequent IQ test than someone with more money, one study in New Jersey showed.

A new report from ideas42, a New York think-tank, explores some of these under-acknowledged effects and asks us to think about the context of poverty as much as its financial realities. It argues that by changing the environment faced by the people on lower incomes, we can change people’s behavior and make poverty-alleviation programs more effective than they are today. In other words, it calls for a “behavioral science” approach that takes account of people’s actual circumstances:

Interventions grounded in behavioral science can range from small “nudges” or programmatic tweaks to large policy overhauls. Alone or in combination, these interventions act as force multipliers, ratcheting up the effectiveness of any given program or initiative. While good behavioral design cannot fully offset the negative effects of structural problems like racism and economic inequality, it can help families derive maximum benefit from the resources and services available to them.

At the heart of the idea of behavioral science is the idea that “preferences” aren’t stable. In this case, it means that two people will respond to a situation differently depending on their means and background. That contradicts classical economic thinking that says we’re all basically the same and all basically rational, holding preferences “that remain more or less consistent across time and place.” For example, we might think that a public campaign to reduce obesity simply requires telling people that certain foods contain a lot of sugar and fat. But it doesn’t work like that. People’s choices are shaped by things like access to healthy food and whether their friends eat healthily. In effect, the choice is different for different people.

The report calls for a change in thinking among service-providers catering to people on lower-incomes, laying out three broad sets of principles to follow:

Source: Co.Exist (link opens in a new window)

Base of the Pyramid, poverty alleviation