Poverty-Related Bandwidth Constraints Reduce the Value of Consumption
OFH Contributors
Key Takeaways
Poverty creates a “double tax” by reducing both consumption and the enjoyment we derive from it.
The experience of poverty reduces mental bandwidth and raising stress, reducing enjoyment from food and entertainment.
Poverty alleviation programs may deliver larger welfare returns than standard metrics capture. They may be more valuable than previously assumed.
Executive Summary
Introduction
Poverty has many costs on individuals, some of which may extend beyond direct material deprivation. This study examines whether poverty additionally reduces welfare by lowering the enjoyment of people consume. Using a lab-in-the-field design, the study tests whether poverty-related stressors that constrain cognitive bandwidth and raise stress reduce the experienced value of consumption of food and entertainment. In doing so, the study seeks to enumerate the full cost of poverty on individuals – a critical inquiry given interest in poverty alleviation in both the United States and globally.
Main Findings
- Participants were randomly exposed to features of poverty — such primes to think about financial stressors, reduce cognitive load, and increase thirst. Those randomized to these stressors reported significantly less enjoyment of consumption of food, music, videos, and games.
- The largest effects were observed for food with a .4 standard deviation decline.
- Effects were strongest among individuals with lower socioeconomic status, indicating that the welfare costs of poverty-related stressors disproportionately burden the poor.
- The study also demonstrates that standard economic measures of willingness-to-pay — which require participants answering multiple questions and basic calculations — may mismeasure enjoyment of consumption among the poor.
Conclusion
Poverty imposes a dual burden on people by reducing both the amount of consumption and the enjoyment derived from it. This implies that the welfare costs of poverty are likely underestimated in traditional economic analyses, which focus on consumption. Poverty alleviation policies that reduce cognitive overload may therefore deliver larger benefits than previously recognized. They may allow individuals to dedicate additional cognitive resources to either productive activities or the enjoyment of consumption.