Poverty and economic decision making: a review of scarcity theory

Ernst-Jan Bruijn () and Gerrit Antonides
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Ernst-Jan Bruijn: Wageningen University
Gerrit Antonides: Wageningen University

Theory and Decision, 2022, vol. 92, issue 1, No 2, 5-37

Abstract: Abstract Poverty is associated with a wide range of counterproductive economic behaviors. Scarcity theory proposes that poverty itself induces a scarcity mindset, which subsequently forces the poor into suboptimal decisions and behaviors. The purpose of our work is to provide an integrated, up-to-date, critical review of this theory. To this end, we reviewed the empirical evidence for three fundamental propositions: (1) Poverty leads to attentional focus and neglect causing overborrowing, (2) poverty induces trade-off thinking resulting in more consistent consumption decisions, and (3) poverty reduces mental bandwidth and subsequently increases time discounting and risk aversion. Our findings indicate that the current literature predominantly confirms the first and second proposition, although methodological issues prevent a firm conclusion. Evidence for the third proposition was not conclusive. Additionally, we evaluated the overall status of scarcity theory. Although the theory provides an original, coherent, and parsimonious explanation for the relationship between financial scarcity and economic decision making, the theory does not fully accord with the data and lacks some precision. We conclude that both theoretical and empirical work are needed to build a stronger theory.

Keywords: Scarcity theory; Literature review; Poverty; Cognition; Attention; Economic decision making (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s11238-021-09802-7

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