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Cognitive droughts

Guilherme Lichand and Anandi Mani

No 341, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: Poverty involves both low income levels and high income uncertainty. Do both these dimensions of being poor capture attention in ways that distort decision-making and trap people in poverty? We examine these issues using real-life shocks faced by farmers in Brazil: random payday variation affecting income levels, and rainfall shocks that affect income uncertainty. We find that it is income uncertainty that systematically has adverse cognitive effects; low income levels affect only the poorest households. The net adverse impacts on cognitive function prevail even though both dimensions of poverty reallocate attention to scarce-resource tasks. These results broaden our understanding of the impacts of uncertainty by exploring a psychological channel distinct from risk aversion, and help reconcile apparently contradictory evidence on the cognitive impact of poverty in previous studies.

Keywords: Uncertainty; attention; psychology of poverty; scarcity (search for similar items in EconPapers)
JEL-codes: D81 D91 I32 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-neu and nep-upt
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