COGNITIVE DEFICIT AND POVERTY
By Karl Arnold Belser
18 September 2014



I recently read the book Scarcity: Why having Too Little Means So Mush that gave me an insight into why the rich and poor might have different longevity as I talked about in my blog post Longevity and Wealth.

The authors, Mullamaathan and Shafir, conclude that it is lack of what they call bandwidth , that is lack of usable cognitive resources, that is at fault. Poor people are essentially focused on survival and as a result they make cognitive errors that reinforce the situation of poverty and even transmit the behaviors to their offspring. The situation is like that of a drowning man who is totally  focused on keeping his head above water such that he cannot figure out how to get to the shore.  This conclusion is what the book title implies.

The authors try to shift the "blame" for poverty and character failure to bad circumstances. They even allude to the fact that even though people know how to manage money or go on a diet, they don't do it. Presumably such people are so focused or stressed that they can't control themselves. Education would only be another source of stress , which according to the authors might make the situation worse. So what can be done if the people can't or won't help themselves?

I was particularly struck by the results of a large experiment done by the authors. Some food sellers in India purchased every day's inventory using borrowed money at 5% per day. The interest was equal to about half of the vendor's total profit. If the vendors saved 1%  per day for a month they could get out of debt, but they didn't do it. If they were given the money free and clear they would overspend over the period of a year to be back in debt again.  Why didn't the vendors look out for their own interest even though the consequences of their behavior was explained to them?

The answer might be one of the following possibilities:

1) The vendor doesn't put protection of capital at a high enough priority..
2) The vendor has an imbred character flaw.
3) The person has given up trying.

I personally think that all three situations might occur. For example some fat people think it is OK to be fat, some just don't have any self discipline, and some have tried to loose weight and have given up.

I note that possibility two is politically incorrect. It suggests that some people may be more capable than others in self discipline.

T
he Stanford Marshmallow Experiment confirms that there are intrinsic differences in people. The experiment showed that some children (from a group of children that were all racially and economically similar) could discipline themselves to obtain deferred gratification, and others could not. Even more telling is that the children with good self discipline were generally more economically successful in later life.  The authors discussed the experiment in their book but did not tie this propensity into their conclusions.

The author's  main conclusion was to recognize that distraction does in fact undermine one's cognitive abilities and effectively lowers the person's IQ. The book gives a number of useful suggestions to avoid getting overloaded.

1) Have some contingency money available in the case of emergency.
2) Leave some time free every day for unexpected happenings.
3) Automate as many regularly occurring activities as possible, like that of bill paying,.
4) Have helpers handle routine activities that cannot be automated.
5) Have another person screen phone calls, eimal messages, and mail so that you handle only  important items.
6) Use nudge theory to shape your own behavior.
7) Develop habits that don't require you to think. (This is System 1 behavior from Thinking fast and Slow)

These are good suggestions and make sense, unless, as the authors assert, one is already overloaded to the point of having no self discipline. I think that self discipline would be needed to implement any of these suggestions.

I hope that the American government doesn't try to "make everyone equal" by some sort of public policy move because I think that the intrinsic state of nature is that there will be haves and have-nots in a power law distribution like it is today and has been for thousands of years.

It is experimentally clear that it is bad public policy to give home loans to anyone or to give student loans to anyone just because it is politically correct to treat everyone equally. The unqualified people who should not have gotten a home loan have gone bankrupt and the unqualified people that got student loans are now debt slaves for life. The good intentions of the government have simply made the unqualified worse off than they were to begin with.

I note, as confirming evidence,  that the article The Science of Inequality, Physicists Say It's Simple in the May 2014 special  "Haves and Have-Nots"Issue of Science shows the power law character of inequality. I think it is unwise to fight mother nature.

Now let me give some counter examples in an attempt to falsify the idea that scarcity alone is the cause of problems.

I became visually impaired legally blind) in 1984 and one might think that such a devastating event would have ruined me for life. It didn't. in fact it inspired me to become even more successful, which fact I am enjoying today.

As I am writing this post  PBS is showing the series called 
The Roosevelts  which shows very clearly how FDR's polio empowered him to succeed. In fact one might conclude that because he was able to deal with his illness that he was the perfect person to lead the United States out of the much more serious illness of the Depression. See episode 4 of the series.

I suspect that the distribution of people with good self discipline and intelligence might be Normal. Then the transformation from bell curve to power law would be that of exponential growth as a function of combined intelligence and self discipline.  

Having self discipline, like that of intelligence,  may be a matter of the person's intrinsic nature or of the person's family life experience , that is determined by the person's genome or epigenome respectively. In either case there is no public policy that will make everyone equal.

Given that one cannot know who will be successful or not, the best public policy, and the one that I think the US is implementing, is to maintain everyone at a standard of living above the poverty level. In this case the people that can flourish will flourish. See my post regarding Mental Models and World Economics.
   
Last updated September 19, 2014
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