According to a global study led by a researcher from Columbia University, the presence of economic inequality at the societal level cannot be attributed to poor decision-making among the impoverished or to sound choices made by the wealthy. The research reveals that decision-making patterns among individuals, including those who have successfully overcome poverty, exhibit similar tendencies across different income groups.

Despite the continued escalation of economic inequality within countries, attempts to tackle this issue have largely proven ineffective, particularly when employing behavioral interventions. While it has been often suggested, but not empirically tested until now, that the decision patterns of low-income individuals could hinder the effectiveness of such interventions aimed at enhancing upward economic mobility.

Economic progress

The study draws on online surveys conducted in 22 languages, encompassing nearly 5,000 participants from 27 countries across Asia, Europe, North America, and South America.

The researchers assessed decision-making capabilities based on 10 individual biases, including factors such as temporal discounting (preference for immediate gains over larger future rewards), overestimation of decision-making skills, over-placement (believing oneself to be superior to the average person in decision-making), and extremeness (choosing the middle option as it appears safer than the highest or lowest).

In conjunction with related research highlighting the association between temporal discounting and the broader economic environment rather than individual financial circumstances, these new findings serve as a significant validation of arguments refuting the notion that individuals living in poverty are uniquely susceptible to cognitive biases that alone explain their enduring state of economic hardship.

“Our research does not reject the notion that individual behavior and decision-making may directly relate to upward economic mobility. Instead, we narrowly conclude that biased decision-making does not alone explain a significant proportion of population-level economic inequality,” the researchers explain.

“Low-income individuals are not uniquely prone to cognitive biases linked to bad financial decisions. Instead, scarcity is more likely a greater driver of these decisions.”