The biology of poverty traps
By way of catching up on my popular social science, I have been reading Daniel Kahneman’s Thinking Fast and Slow and Esther Duflo and Abhijit Banerjee’s Poor Economics. Among the most arresting revelations in the latter is the following:
There is a strong association between poverty and the level of cortisol produced by the body, an indicator of stress. Conversely, cortisol levels go down when households receive help. The children of the beneficiaries of PROGRESA, the Mexican cash transfer program [later renamed Oportunidades], have, for example, been found to have significantly lower levels of cortisol than comparable children whose mothers did not benefit from the program.
One of the problems with producing excess cortisol is that the hormone impedes the functioning of important parts of the brain. The prefrontal cortex, for example, which is vital for suppressing impulsive responses, is rendered less effective by high cortisol levels, making us more likely to take hasty, ill-considered decisions. ‘When experimental subjects are artificially put under stressful conditions,’ Duflo and Banerjee note, ‘they are less likely to make the economically rational decision when faced with choosing among different alternatives.’
When I was in Guinea-Bissau a couple of years back, I remember being horrified that an impoverished local housewife who complained that she could not afford her daughter’s $10-a-month school fees was nevertheless able to buy regular top-up cards for her expensive mobile phone. At the time I blamed consumerism and the foreign aid workers who paraded their own phones so brashly, but it may be that biology played a part too, and that high cortisol levels were impeding the woman’s judgement and encouraging her to make impulsive and seemingly irrational investments. Indeed, Duflo and Banerjee report that women who had access to a microcredit program in India drastically reduced their purchases of impulse products such as tea and snacks; the two economists postulate that this occurred both because the women’s cortisol levels declined in line with the reduction in stress and because their increased confidence that plans would come to fruition gave them a stronger incentive to restrain themselves.
But it is not just short-term decision-making that is affected by cortisol – people who are unable to control their impulses as children are at a serious disadvantage later in life. In Thinking Fast and Slow, his wonder-strewn study of the brain’s reasoning powers, Daniel Kahneman describes a famous psychological experiment wherein a group of four-year-old children were given a choice between eating one biscuit now or two if they could wait for fifteen minutes. Each child was left alone in a room, with just the single biscuit and a bell for company. If the child could not resist the temptation, she was to ring the bell and the experimenter would come in and give her the biscuit. (more…)