22/2010 Patricio Dalton, Sayantan Ghosal and Anandi Mani

We develop a model of internal constraints to show that a greater degree of initial disadvantage results in a higher likelihood of low aspirations and low achievement. Our model and results are supported by evidence from anthropology, sociology and social psychology. Our analysis suggests that internal constraints are a key ingredient in perpetuating poverty traps. We show that a poor person will choose to restrict her cognitive window (the set of other individuals who are her role models) and study the conditions under which a role model could alter her aspirations and achievement. We show how endogenously chosen cognitive windows interact with the initial distribution of status to determine whether or not a society is connected, and hence the transmission of aspirations across individuals in that society. Our work provides a normative justification for programs that aim at empowering disadvantaged individuals by directly shocking their aspirations.

Behavioural Economics and Wellbeing

The Economic Journal

http://dx.doi.org/10.1111/ecoj.12210