Cognitive Droughts

University of Zurich, Department of Economics, Working Paper No. 341

82 Pages Posted: 16 Mar 2020

See all articles by Guilherme Lichand

Guilherme Lichand

University of Zurich - Department of Economics

Anandi Mani

University of Warwick

Date Written: February 18, 2020

Abstract

Poverty involves both low income levels and high income uncertainty. Do both these dimensions of being poor capture attention in ways that distort decision-making and trap people in poverty? We examine these issues using real-life shocks faced by farmers in Brazil: random payday variation affecting income levels, and rainfall shocks that affect income uncertainty. We find that it is income uncertainty that systematically has adverse cognitive effects; low income levels affect only the poorest households. The net adverse impacts on cognitive function prevail even though both dimensions of poverty reallocate attention to scarce-resource tasks. These results broaden our understanding of the impacts of uncertainty by exploring a psychological channel distinct from risk aversion, and help reconcile apparently contradictory evidence on the cognitive impact of poverty in previous studies.

Keywords: Uncertainty, attention, psychology of poverty, scarcity

JEL Classification: D81, D91, I32

Suggested Citation

Lichand, Guilherme and Mani, Anandi, Cognitive Droughts (February 18, 2020). University of Zurich, Department of Economics, Working Paper No. 341, Available at SSRN: https://ssrn.com/abstract=3540149 or http://dx.doi.org/10.2139/ssrn.3540149

Guilherme Lichand (Contact Author)

University of Zurich - Department of Economics ( email )

Zürich
Switzerland

Anandi Mani

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

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