695/2023 Karla Hoff, Allison Demeritt

Until recently, economics conceived of poverty solely as a lack of material resources. This view likely captures the reality of poverty experienced by many people around the globe. However, two waves of behavioral economics demonstrate that the narrowing of people’s external environments may change people themselves: poverty lowers the quality of decision-making, and poverty and oppression may depress the capacity to aspire. Poverty and a history of oppression also change how individuals are perceived. To overcome these effects may require helping people acquire new mental models. This essay discusses key findings from behavioral economics, the implications for agency, and some interventions with promising outcomes. We hope to inspire scholars and policymakers to think more deeply about the nature of poverty and oppression and to consider policies that target the psychological and sociological factors that create cycles of poverty.

Culture, Behaviour and Development