Uncertainty Attitudes and Poverty
-
SeriesBrown Bag Seminars General Economics
-
Speaker
-
FieldBehavioral Economics
-
LocationErasmus University Rotterdam, Lounge/kitchen E Building floor E1
Rotterdam -
Date and time
March 16, 2023
12:00 - 13:00
Abstract. This paper shows that biases inherent to decision-making under uncertainty can reinforce poverty. Our model shows that probability distortions and ambiguity attitudes can prevent individuals from evaluating investments correctly, leading them to forgo profitable opportunities. Because the marginal return to investments is larger for the poor, passing on those profitable opportunities due to these biases entails acuter consequences for them; their poverty can be perpetuated even though chances to overcome their initial condition were available. Our study highlights the role of well-established biases of decision-making under uncertainty in generating poverty traps.