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Hope Springs Eternal

May 23, 2012

The issue of social mobility has proved itself a continual challenge for those working in international development.  New research has given policy makers and the poor an unlikely resource in their fight against poverty. Indeed, a recent article in The Economist shows that hope, or lack thereof, plays a major role in the poverty trap.

Esther Duflo, professor of economics at MIT

Development economists have long included the poverty trap in their understanding of the poor.  A poverty trap is, simply put, a “self-reinforcing mechanism” which limits the ability of poor individuals to escape poverty, according to a World Bank publication.  The publication goes on to identify insufficient capital and technological under-development as two mechanisms working to ensnare the poor in a perpetual cycle of poverty.  The work of researchers Eldar ShafirEsther Duflo, and others, however, is expanding the definition of a poverty trap beyond economic mechanisms to include psychological mechanisms as well.

The link between depression and poverty is well documented.  A STAR-D study identifies low income as one of many factors related to higher risk of chronic depression.  A Journal of Health and Social Behavior article complements these findings, suggesting that depression can lead to or “transmit” poverty, contributing to the inescapable cycle.

Well, perhaps not entirely inescapable.  A May 11th Economist article, drawing on the research and lectures of Esther Duflo, suggests that hope may provide an exit from the poverty trap. Duflo’s evaluation of the Indian microfinance company Bandhan’s project reveals the key role hope plays in development.  Bandhan provided the “ultra-poor” with a small asset in the form of a farm animal.  Bandhan was shocked to see that the recipients of these assets enjoyed rates of consumption and income far greater than the marginal value of the output of their newly acquired assets.  Duflo explains this phenomenon by suggesting that these assets gave the “ultra-poor” the “mental space to think about more than just scraping by.”  As a result, productivity increased and depression rates dropped.

study conducted with men in Bangladesh reflected similar findings.  Researchers from the London School of Economics, the University of Sydney, and Yale University provided incentives to Bangladeshi men to migrate from rural areas to urban centers in order to search for jobs during the seasonal famine.  While most of the participants could have easily saved a sum of money equivalent to the incentive, presented as bus fare, these small allowances significantly increased migration rates, which ultimately lead to an increase in income.

This leads to another question, “if the incentive were small, why didn’t the poor save for them?”  There are a number of responses to this question and hope is, unsurprisingly, an important factor.  First, as the study with Bangladeshi men suggests, those living at, or close to, subsistence levels are risk averse and unwilling to save in pursuit of innovation.  Indeed, a paper by Duflo and Banerjee suggests that the possibilities of future hardships and temptations leave the poor pessimistic about the efficacy of saving.

Eldar Sharif’s research points to a second psychological impediment to saving.  Shafir argues that poverty is “an emotional state” that causes the poor to focus on the present, disregard the future, and act irrationally.  The Princeton researcher conducted an experiment in which students “were given questions to answer in a series of timed rounds, but were permitted to ‘borrow’ time from a subsequent round.”  Sharif found that in stressful situations even the brightest students began to focus on the present, and ended up over-borrowing and leaving nothing for future rounds.  The results of this study provide a useful analog to the stress of subsistence living, which impedes one’s ability to save and perpetuates cycles of poverty.  The way to address the issue of poverty is, according to Shafir, to respond to the specific contexts that lead to irrational behavior.  Duflo’s research suggests that such a response should come in the form of an injection of hope into the lives of the poor.

All this goes to say that hope in the form of a resource can motivate the risk averse, increase productivity, and lead to social mobility.

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