POVERTY’S BRAIN DRAIN:
HOW FINANCIAL STRESS AFFECTS IQ
Anandi Mani
Poverty & Its Puzzles


The Poor tend to care less for their health

Use less preventive healthcare

Comply less with treatment regimes (Case et al AER 2004)
The Poor are less attentive parents


The Poor pass up on productive investment opportunities…


Better off parents read more to their kids, engage them in more conversations, take
them to cultural/educational events more often, regulate the amount of TV that their
kids watch more…
…despite having resources and knowledge to do so (Duflo et al 2010)
STYLIZED FACT: Poverty is Correlated with “Bad” Behavior WHY
??
Possible Explanations

Good things cost money
 Ex:

Factors associated with poverty


drugs cost money
Poor are less knowledgeable
The poor are just different people
 Care
less about the future, less intelligent (cognitive
capacity)
Possible Explanations

Good things cost money
 Ex:
drugs cost money
Costs do not matter for many behaviors

Factors associated with poverty
 Poor
are less knowledgeable
Doesn’t quite explain many behaviors of the poor

The poor are different people
 Care
less about the future, less intelligent (cognitive
capacity)
Poor are Worse Decision Makers

One explanation for poverty:
 (Bad)

Decision-Making  Poverty
Our Alternative Explanation:
 Poverty
 (Bad) Decision-Making
There’s something about Scarcity
The Poor must manage sporadic income, juggle
expenses, and make difficult financial tradeoffs.
 Mental Bandwidth is limited
 Our Hypothesis: Concerns about (Financial) Scarcity
are taxing…

 They
capture attention (mental bandwidth) and trigger
intrusive thoughts…
 … leaving less for other important, but less urgent tasks

Why should the mind be structured like this?
 Capture
is Involuntary
Control condition
Food condition
Search times by condition and group
Log transformed search times for neutral target
words
9.2
*
9.1
9
Food condition
Control condition
8.9
8.8
8.7
8.6
Non-dieters
Dieters
Interaction: p=.074 (more data coming)
Controlling for search times on 3 practice
trials
Evidence for the Hypothesis
EXPERIMENTAL STUDY:
• Trigger thoughts about Financial concerns
by presenting hypothetical scenarios to
mall shoppers …
•
FIELD STUDY:
• Farmers financially stretched
before harvest, richer after
they’re paid.
• Compare IQ test performance of
the same farmer before harvest
versus after harvest (when he is
richer)
Give them IQ tests as they’re thinking
about how they would deal with the
scenario
Cognitive Tests
Raven’s Tests
Number Stroop Tests

1
4
2
5
3
6
Respondents shown a string of
(identical) numbers; Task is to count
the number of digits, not the number
itself

333

666666

22

11

4
Findings

Financial Stress results in a drop of 10-13 IQ
points…which is the equivalent of IQ lost
 From
loss of a full night’s sleep
 From becoming a normal drinker to an alcoholic
 Going from 45 to 60 years of age
Conclusions & Policy Implications





Bottom Line: Poverty is not just about material resources,
but also about lower mental resources
Policies should be created in a way to reduce the
cognitive demand in the poor
Set up the right default in retirement plans, health insurance,
bank accounts
Simplify forms, application procedures
Set up commitment devices & Timely Reminders
Thank you!
Special thanks to:
Eldar Shafir
Jiaying Zhao
Sendhil Mullainathan
Interpreting the Results



Our Hypothesis: Concerns about Financial scarcity are
taxing on Cognitive Ability
Other Factors could potentially affect outcomes too
 Greater Physical Effort & Exhaustion during Harvest
 Anxiety about Harvest, Overall “Stress”
 Nutrition
 Other?
Learning Effects
Study in a NJ mall
Your car breaks down and requires $X to be
fixed. You can pay in full, take a loan, or take a
chance and forego the service at the moment...
How would you go about making this decision?
• “Easy” Condition: X = 200
• “Hard” Condition: X = 2000
Cognitive control task
Results
Raven’s Matrices
Cognitive Control
*
**
***
Accuracy
Accuracy
**
Challenging financial scenarios
impeded cognitive abilities of the poor
* p < .05
** p < .01
*** p < .001
Anxiety about Math?
Suppose you are on the board of a national
organization that is hoping to increase membership
by at least X members. You can conduct a
campaign and decide which cities, or rely on
word-of-mouth...
How would you go about making this decision?
Results
Cognitive Control
Accuracy
Accuracy
Raven’s Matrices
Not because of anxiety in math
With Monetary Incentives
a financial problem
Raven’s matrices incentives: $.25 for every
correct response
cognitive control task
Time
respond to the
financial problem
Results
Raven’s Matrices
Cognitive Control
*
*
***
Accuracy
Accuracy
***
The poor performed worse,
and earned less, $0.71 (or 18%)
* p < .05
*** p < .001
Summary


The poor exhibited diminished cognitive abilities when
financial problems were challenging, but were
comparable to the rich when problems were benign
Field & Lab evidence suggests that Financial Scarcity
presents challenges that consume cognitive resources,
leaving less for other tasks, hence impeding other
basic cognitive functions
Conclusions & Policy Implications






A new explanation for why the poor appear less
capable: The State of Poverty hurts Mental Capacity
Policies should be created in a way to reduce the
cognitive demand in the poor
Set up the right default in retirement plans, health insurance,
bank accounts
Simplify forms, application procedures
Set up commitment devices
Reminders
More Than Poverty

Scarcity more broadly

Studies on the lonely

Studies on dieters

Experimentally constructed scarcity
Future Work

Conceptual “replication”
 2008
replication of harvest study

What constitutes “poverty”?

Show link to behavior

Long term effects
Overall “Stress”

Effects of Stress on outcomes are not always negative


Yuen et al(PNAS, 2009): Enhances Working Memory
Our 2009 Study in neighboring areas of Tamil Nadu:
Significant effects on Biological markers of stress
Heart rate, pre vs. post: (78.36 vs. 76.19; p=0.065, N=187)
 Diastolic blood pressure (78.70 to 74.26, p<0.001, N=188)
 Systolic blood pressure (128.64 vs. 121.56, p<0.001, N=188)



Significant post-harvest improvement in Cognitive Test
outcomes, robust to controls for above biological markers.
Suggests that the impairment in cognitive functions was not
solely driven by stress.