Are the poor so present-biased?
Open accessAbstract
Estimates of “present-bias” among the poor may be exaggerated if poor individuals are credit-constrained and expect to have greater liquidity in the future. I conduct an experiment in rural Pakistan which provides causal evidence of this effect. I use windfalls to generate fully exogenous variation in subjects’ liquidity constraints. I show that fluctuating liquidity has a significant and sizeable effect on measures of time-inconsistency, which does not operate via cognitive functioning. Importantly, I establish that the causation runs from tighter liquidity constraints to appearing “present-biased” — rather than truly present-biased individuals making choices which lead to tighter liquidity constraints.
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Other studies exploiting variation in payday and windfalls found that poverty increased time discounting, but not due to cognitive load.
“Other studies exploiting variation in payday (Carvalho et al. 2016) and windfalls (Cassidy 2018) found that poverty increased time discounting, but not due to cognitive load.”
From Poverty and economic decision making: a review of scarcity theory (2022) · cites this paper as Cassidy 2018
The Introduction reports that delaying a windfall made participants more likely to appear present-biased, and says the effect did not appear to operate through cognitive functioning. But it explicitly says the treatment cannot change underlying time preferences: the finding concerns measured choices under changing liquidity constraints, not that poverty increased time discounting itself. Page numbers were not supplied in our copy. (LLM, conf=0.90)
Experimental — accuracy not yet measuredStudies consistently show that facing financial scarcity increases temporal discounting.
“Studies consistently show that facing financial scarcity increases temporal discounting (Bartos et al. 2018; Carvalho et al. 2016; Cassidy 2018; Ong et al. 2019).”
From Poverty and economic decision making: a review of scarcity theory (2022) · cites this paper as Cassidy 2018
The Introduction reports that rural Pakistani subjects expecting their liquidity constraints to ease became more likely to appear present-biased in choices over money. It also says the temporary treatment cannot change their underlying time preferences, so the result does not establish that scarcity increases temporal discounting itself. This paper alone does not establish that studies consistently find such an increase. (LLM, conf=0.87)
Experimental — accuracy not yet measuredIncreased time discounting might reflect rational adaptations of the poor to changes in liquidity constraints rather than increased cognitive load.
“Both studies propose that increased time discounting might reflect rational adaptations of the poor to changes in liquidity constraints rather than increased cognitive load.”
From Poverty and economic decision making: a review of scarcity theory (2022) · cites this paper as Cassidy 2018
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Cites
Poverty impedes cognitive function.
Mani, A., Mullainathan, S., Shafir, E., & Zhao, J. (2013) · Science · doi:10.1126/science.1238041 · Cited by 2,967 · cited 1× · see citing works
“While poverty may impair decision-making (Banerjee and Mullainathan, 2010; Mani et al., 2013), some of the apparently irrational behaviour observed among the poor may have a rational explanation.”
BackgroundAnderson, M. L. (2008) · Journal of the American Statistical Association · doi:10.1198/016214508000000841 · Cited by 2,410 · see citing works
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Poverty and economic decision making: a review of scarcity theory
de Bruijn, E.-J., & Antonides, G. (2022) · Theory and Decision · doi:10.1007/s11238-021-09802-7 · Cited by 277 · see citing works
“Studies consistently show that facing financial scarcity increases temporal discounting (Bartos et al. 2018; Carvalho et al. 2016; Cassidy 2018; Ong et al. 2019).”
- Authors
- Cassidy, R.
- Corresponding author
- Cassidy, Rachel
- ORCID
- Cassidy, Rachel
- Publisher
- The IFS
- Published
- 2018-10-17
- OpenAlex
- W2896801129
- Cited by
- 12
- References
- 2
- Citations by year
- 2026: 1 · 2025: 1 · 2023: 5 · 2022: 1 · 2021: 2 · 2020: 2
- Type
- report
- Language
- en
- Open access
- green
- hdl.handle.net
- Locations
- RePEc: Research Papers in Economics (submittedVersion)
- Econstor (Econstor) (submittedVersion)
- Topics
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Safety Research › Experimental Behavioral Economics Studies
- Keywords
- present bias, time inconsistency, liquidity constraints, credit constraints, poverty, windfall gains, rural households, household consumption, cognitive function
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