Johannes Haushofer on the psychology of poverty

May 27, 2014 by Peter Dizikes
Floodwaters surrounding houses in Dhaka, Bangladesh

The World Health Organization has estimated that 1.5 billion people live on less than $1 a day. One of the mechanisms through which poverty perpetuates itself may be psychological: Being poor seems to create greater levels of stress, negative affect, and depression, which themselves can lead people toward short-term, risk-averse decisions, constraining their ability to find a long-term path out of poverty.

Johannes Haushofer, a postdoc at MIT's Abdul Latif Jameel Poverty Action Lab, is co-author (with Ernst Fehr, an economist at the University of Zurich) of an article in this week's issue of Science examining the evidence on this feedback loop. To be sure, Haushofer notes, there are great material constraints on the very poor, and additional good reasons for the poor to be risk-averse, such as limited access to low-interest borrowing. Still, he asserts, we can learn much more about the psychological condition of the very poor.

Q. What is the hypothesis that you and others are exploring about the psychology of being poor?

A. Our question is if poverty has psychological consequences, even neurobiological consequences, which in turn affect the way people make economic decisions. If you put those two links together that might be one way poverty perpetuates itself—through psychological channels. That's not to say the poor are somehow intrinsically deficient, or to blame for their poverty. It's saying precisely the opposite, in fact: It's asking what the power of the situation is to cause certain types of behaviors.

Poverty changes so many things about people's lives that it would be a bit surprising if it didn't also change the way [people] think. It seems like a no-brainer that poverty causes stress, and that stress may affect economic choices, but it turns out we didn't really have a very good answer to that until very recently. The research I, and others, have done over the last couple of years has tried to make a dent in these questions.

Q. What is the evidence for this?

A. There is now a growing number of studies showing that … within and across countries, poorer people tend to be more stressed and have higher levels of cortisol, which is the body's main stress hormone, than richer people. But, of course, we want to understand if this is a causal relationship due to changes in income. One way of doing this is to make people less poor, to see if they become less stressed. The other is to find situations where people become poorer. Obviously that's not something we would do in an experiment, but unfortunately there are sometimes events that make people poorer.

Both increases and decreases in income turn out to both affect stress, in opposite directions. My co-author Jeremy Shapiro—an MIT economics PhD student—and I did a randomized, controlled experiment in Kenya where we gave people $700 with no strings attached, almost their yearly income, and asked if they were more or less stressed. … We saw improvements in happiness, reductions in stress and depression, and decreases in cortisol levels for some types of transfers.

Other people have studied this question using lotteries. There is a very nice recent study from Sweden, which shows a decrease in the consumption of [mental-health drugs] after people win the lottery.

Conversely, my colleagues Matthieu Chemin and Joost de Laat and I did a study in Kenya of farmers who experienced negative income shocks through drought. We observed increases in levels of both self-reported stress and cortisol. So it looks like there's a causal effect there.

Now, on the effect of stress and negative emotions on decision-making, there's a growing body of evidence showing that stress makes people more risk-averse and more impatient. Jennifer Lerner at Harvard has done a series of landmark studies on this question. In one really nice experiment, she and her co-authors showed that making people sad makes them very impatient. Sandra Cornelisse, Vanessa van Ast, Marian Joels, and I did a study where we give people a pill that raises cortisol levels in the brain and we find that this, too, makes them more impatient.

Similarly, a number of studies show that stress increases risk-aversion: For instance, Anthony Porcelli and Mauricio Delgado showed that stress induced by mild physical pain makes people prefer rewards that are safer, not riskier. And Narayanan Kandasamy used the pills I described above to raise , and also found that people are [then] more likely to choose the safe outcome.

If you put this together, it suggests that by virtue of being poor, you're stressed, and if you're stressed, you're even more risk-averse and impatient than you otherwise would be. That's an additional factor that may keep you from investing in long-term outcomes, like education, health, fertilizer, and so on.

Q. Where would you like to see more research in this field?

A. There are two main areas where I'd like progress to be made. The first is: You don't want people to be unduly stressed or depressed. These are welfare outcomes in their own right. I would like to see more interest in measuring psychological well-being directly, both through questionnaires and these biomarkers we now have. The second thing is that if this exists, we want to break it. There are three natural places you can attach levers. You can try to alleviate poverty [through cash transfers, for instance]; you can try to improve decision-making through small nudges to behavior; and you can address the third component, stress. On the third of these points—the effect of alleviating stress on poverty—there is very little work, and this is an area where we urgently need progress. Once we have an answer to this question, we can choose the intervention that's most effective. For example, one day we may look at the evidence and say, "OK, it looks like alleviating [directly] doesn't do as much as just giving people money." Then we'll have learned something.

Explore further: Merely observing stressful situations can trigger a physical stress response

Related Stories

Merely observing stressful situations can trigger a physical stress response

April 30, 2014
(Medical Xpress)—Stress is contagious. Observing another person in a stressful situation can be enough to make our own bodies release the stress hormone cortisol. This is the conclusion reached by scientists involved in ...

Under similar stress, rich live longer than poor, study reports

December 3, 2012
(HealthDay)—Money may not buy you happiness, but it can help you avoid the ill effects of unhappiness and stress. That's the upshot of a new British study that finds stressed-out rich people live longer than the stressed-out ...

If you become poor can you ever be happy again?

March 14, 2014
(Medical Xpress)—Becoming poor makes people feel unhappy immediately due to the loss of income and status and this does not improve, even over the long term. This was the key finding of research* by University of Luxembourg ...

Making a connection between bullying and health problems

May 19, 2014
Over the last decade, the subject of bullying has become a topic of academic interest, as scientists and social scientists delve into the psychological and physiological effects for both the bullied and the bully.

Recommended for you

Talking to yourself can help you control stressful emotions

July 26, 2017
The simple act of silently talking to yourself in the third person during stressful times may help you control emotions without any additional mental effort than what you would use for first-person self-talk – the way people ...

Heart rate study tests emotional impact of Shakespeare

July 26, 2017
In a world where on-screen violence has become commonplace, Britain's Royal Shakespeare Company is turning to science to discover whether the playwright can still make our hearts race more than 400 years on.

Do all people experience similar near-death-experiences?

July 26, 2017
No one really knows what happens when we die, but many people have stories to tell about what they experienced while being close to death. People who have had a near-death-experience usually report very rich and detailed ...

Risk for bipolar disorder associated with faster aging

July 26, 2017
New King's College London research suggests that people with a family history of bipolar disorder may 'age' more rapidly than those without a history of the disease.

Visual clues we use during walking and when we use them

July 25, 2017
(Medical Xpress)—A trio of researchers with the University of Texas and Rensselaer Polytechnic Institute has discovered which phase of visual information processing during human walking is used most to guide the feet accurately. ...

Toddlers begin learning rules of reading, writing at very early age, study finds

July 25, 2017
Even the proudest of parents may struggle to find some semblance of meaning behind the seemingly random mish-mash of letters that often emerge from a toddler's first scribbled and scrawled attempts at putting words on paper.


Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.