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  3. American Economic Review
  4. February 2016
  5. Poverty and Economic Decision-Making: Evidence from Changes in Financial Resources at Payday

Poverty and Economic Decision-Making: Evidence from Changes in Financial Resources at Payday

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Abstract

We study the effect of financial resources on decision-making. Low-income US households are randomly assigned to receive an online survey before or after payday. The survey collects measures of cognitive function and administers risk and intertemporal choice tasks. The study design generates variation in cash, checking and savings balances, and expenditures. Before-payday participants behave as if they are more present-biased when making intertemporal choices about monetary rewards but not when making intertemporal choices about nonmonetary real-effort tasks. Nor do we find before-after differences in risk-taking, the quality of decision-making, the performance in cognitive function tasks, or in heuristic judgments. (JEL C83, D14, D81, D91, I32)

Citation

Carvalho, Leandro S., Stephan Meier, and Stephanie W. Wang. 2016. "Poverty and Economic Decision-Making: Evidence from Changes in Financial Resources at Payday." American Economic Review, 106 (2): 260-84. DOI: 10.1257/aer.20140481

Additional Materials

JEL Classification

  • C83 Survey Methods; Sampling Methods
  • D14 Household Saving; Personal Finance
  • D81 Criteria for Decision-Making under Risk and Uncertainty
  • D15 Intertemporal Household Choice; Life Cycle Models and Saving
  • I32 Measurement and Analysis of Poverty