Poverty and Aspirations Failure

P.S. Dalton, S. Ghosal, A. Mani

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Abstract

We develop a theoretical framework to study the psychology of poverty and 'aspirations failure'. In our framework, the rich and the poor share the same preferences - and also a behavioral bias in setting aspirations. Greater downside risks imposed by poverty exacerbates the effects of this behavioral bias: the poor are more susceptible to both an aspirations failure and pessimism about the likelihood of achieving success. Poverty limits the set of people whose life experiences the poor consider relevant for forming their own beliefs and aspirations. Mitigating behavioral poverty traps require policies which go beyond reducing material deprivation.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages35
Volume2011-124
Publication statusPublished - 2011

Publication series

NameCentER Discussion Paper
Volume2011-124

Keywords

  • Reference-dependent Preferences
  • Aspirations
  • Persistent Poverty
  • Locus of control
  • Simillarity and Belief Formation

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