Poverty and Cognitive Function

Transcription

1 Poverty and Cognitive Function Emma Dean, Frank Schilbach, and Heather Schofield The Economics of Asset Accumulation and Poverty Traps June 28, / 45

2 (a) United States (b) India 2 / 45

3 (a) United States (b) India Average Indian adult is 5 foot 3 inches and weighs only 115 pounds (160cm, 52kg) (DHS 2006). Roughly the same weight as: The average adult male in Europe in the late 1700s (Fogel 1993) The average 11 year old in the US today (NHANES 2011) 2 / 45

4 Traditional economics view of food Eating is pleasant, being hungry is unpleasant. 3 / 45

5 Traditional economics view of food Eating is pleasant, being hungry is unpleasant. Eating too little makes you feel tired and weak. 3 / 45

6 Traditional economics view of food Eating is pleasant, being hungry is unpleasant. Eating too little makes you feel tired and weak. These observations have been modeled: Food enters both the utility and production functions. 3 / 45

7 Minnesota starvation experiment November December 1945 N = 36 Figure: (Keys et al., 1950) 4 / 45

8 Psychology: food impacts mental function. Testimonies: The acquisition of [food related items was] as a reasonable extension of [their heightened interest in food.] Much less reasonable was the buying of old books, unnecessary secondhand clothes, knickknacks, and other junk. Often after making such purchases, which could be afforded only with sacrifice, the men would be puzzled as to whey they had bought such more or less useless articles. 5 / 45

9 Psychology: food impacts mental function. Testimonies: The acquisition of [food related items was] as a reasonable extension of [their heightened interest in food.] Much less reasonable was the buying of old books, unnecessary secondhand clothes, knickknacks, and other junk. Often after making such purchases, which could be afforded only with sacrifice, the men would be puzzled as to whey they had bought such more or less useless articles. Then came the day when I lost my will to activity. I no longer cared to do anything that required energy, and days began to drag. 5 / 45

10 Psychology: food impacts mental function. Testimonies: The acquisition of [food related items was] as a reasonable extension of [their heightened interest in food.] Much less reasonable was the buying of old books, unnecessary secondhand clothes, knickknacks, and other junk. Often after making such purchases, which could be afforded only with sacrifice, the men would be puzzled as to whey they had bought such more or less useless articles. Then came the day when I lost my will to activity. I no longer cared to do anything that required energy, and days began to drag. There is nothing that can hold my interest for long. I wait for meal time. 5 / 45

11 Psychology: food impacts mental function. Testimonies: The acquisition of [food related items was] as a reasonable extension of [their heightened interest in food.] Much less reasonable was the buying of old books, unnecessary secondhand clothes, knickknacks, and other junk. Often after making such purchases, which could be afforded only with sacrifice, the men would be puzzled as to whey they had bought such more or less useless articles. Then came the day when I lost my will to activity. I no longer cared to do anything that required energy, and days began to drag. There is nothing that can hold my interest for long. I wait for meal time. This raises many questions... 5 / 45

12 Cognitive impact of nutrition (a) Example cognitive task (b) Cognitive function 6 / 45

13 Altered Decision-making 7 / 45

14 Roadmap (1) Potential links from poverty to impaired cognitive function (2) Areas of cognitive function Attention Inhibitory control Memory Higher-order cognitive functions (3) Potential for economic impact Theory Empirical evidence (Currently) unexplored pathways (4) Measurement A few brief examples Themes: broad applicability, ease of administration and instruction 8 / 45

15 How might poverty impact cognition and decision-making? Nutrition 9 / 45

16 How might poverty impact cognition and decision-making? Nutrition Poverty itself/scarcity (Mani et al., 2013) 9 / 45

17 How might poverty impact cognition and decision-making? Nutrition Poverty itself/scarcity (Mani et al., 2013) Alcohol (Schilbach, 2015) 9 / 45

18 How might poverty impact cognition and decision-making? Nutrition Poverty itself/scarcity (Mani et al., 2013) Alcohol (Schilbach, 2015) Stress (Chemin et al., 2016; Haushofer and Fehr, 2014) 9 / 45

19 How might poverty impact cognition and decision-making? Nutrition Poverty itself/scarcity (Mani et al., 2013) Alcohol (Schilbach, 2015) Stress (Chemin et al., 2016; Haushofer and Fehr, 2014) More speculative Sleep - robust impact on cognition, less know about decision-making (Lim and Dinges, 2010) Pain - some evidence of cognitive impacts (Moriarty et al., 2011) Environmental factors - noise, heat, pollution (Tzivian et al., 2015; Simmons et al., 2008) Others? 9 / 45

20 Overview of areas of cognitive function Mental processes that control attention, ability to work with information, are required for deliberate activity. 10 / 45

21 Overview of areas of cognitive function Mental processes that control attention, ability to work with information, are required for deliberate activity. Crucial to task performance and decision-making 10 / 45

22 Overview of areas of cognitive function Mental processes that control attention, ability to work with information, are required for deliberate activity. Crucial to task performance and decision-making Some disagreement on exact categorizations 10 / 45

23 Overview of areas of cognitive function Mental processes that control attention, ability to work with information, are required for deliberate activity. Crucial to task performance and decision-making Some disagreement on exact categorizations Focus on areas with reasonable agreement in definition and with high potential impact on economic outcomes (1) Attention (2) Inhibitory control (3) Memory (4) Higher-order cognitive functions 10 / 45

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25 Attention overview Selection of information for further processing Arguably underlies many other cognitive functions Debate about exact boundaries and categorizations Internal vs. external Simple vs. complex 12 / 45

26 Attention applications Has already begun to receive attention in economics literature 13 / 45

27 Attention applications Has already begun to receive attention in economics literature Four main lines of existing theory (1) Rational inattention (Sims, 1998, 2003) (2) Sparsity (Gabaix, 2014) (3) Salience (Bordalo et al., 2013; Kőszegi and Szeidl, 2012) (4) Selective attention (Schwartzstein, 2014) 13 / 45

28 Attention applications Empirical work - an example Technology adoption (Hanna et al., 2014) Failure to attend to important attributes, even with repeated experience Figure: Seaweed farming 14 / 45

29 Attention applications Many other potential applications Particular relevance in developing countries 15 / 45

30 Attention applications Many other potential applications Particular relevance in developing countries (1) Accidents - traffic, workplace (2) Parenting (3) Education and learning (4) Productivity effects Rag pickers Rickshaw drivers (anything where one needs to find customers) Factory workers 15 / 45

31 Measuring attention Psychomotor Vigilance Task (PVT) Measure of ability to sustain focus in simple environment Press a button when a stimulus (e.g. colored dot) appears Goal is to react as quickly as possible. One main outcomes are inverse reaction time or lapses 16 / 45

32 Inhibitory control 17 / 45

33 Inhibitory control overview Definition: Ability to override a natural, habitual, or dominant behavioral response to undertake more adaptive goal-oriented behaviors Altering learned behavioral responses to complete a particular goal Includes overriding impulses generally (e.g. to blink when something moves close to your eye) Self-control is an important aspect in the economic domain 18 / 45

34 Inhibitory control applications Substantial economics literature on self-control 19 / 45

35 Inhibitory control applications Substantial economics literature on self-control Two main lines of existing theory (1) Hyperbolic Discounting (Laibson, 1997; O Donoghue and Rabin, 1999, 2001) (2) Dual-Self Models (Fudenberg and Levine, 2006) 19 / 45

36 Inhibitory control applications (1) Inter-temporal choice Frequent use of high interest rate loans (Aleem, 1990; Karlan and Mullainathan, 2010) Low savings, increases with commitment (Ashraf et al., 2006) Failure to take up profitable investments (Duflo et al., 2011; Kremer et al., 2013) Negative income shocks and economic stress may affect discount rates (Haushofer et al., 2013, 2015). 20 / 45

37 Inhibitory control applications (1) Inter-temporal choice Frequent use of high interest rate loans (Aleem, 1990; Karlan and Mullainathan, 2010) Low savings, increases with commitment (Ashraf et al., 2006) Failure to take up profitable investments (Duflo et al., 2011; Kremer et al., 2013) Negative income shocks and economic stress may affect discount rates (Haushofer et al., 2013, 2015). (2) Addiction Smoking (Giné et al., 2010) Alcohol (Steele and Josephs, 1990; Schilbach, 2015) 20 / 45

38 Inhibitory control applications (1) Inter-temporal choice Frequent use of high interest rate loans (Aleem, 1990; Karlan and Mullainathan, 2010) Low savings, increases with commitment (Ashraf et al., 2006) Failure to take up profitable investments (Duflo et al., 2011; Kremer et al., 2013) Negative income shocks and economic stress may affect discount rates (Haushofer et al., 2013, 2015). (2) Addiction Smoking (Giné et al., 2010) Alcohol (Steele and Josephs, 1990; Schilbach, 2015) (3) Productivity Self-control at work (Kaur et al., 2015) (4) Many others possible Rising overweight and obesity Domestic violence? / 45

39 Measuring inhibitory control (a) Click same side (b) Click opposite side Figure: Hearts and Flowers Learn with easy congruent rule (same side - heart) 21 / 45

40 Measuring inhibitory control (a) Click same side (b) Click opposite side Figure: Hearts and Flowers Learn with easy congruent rule (same side - heart) Second round with difficult incongruent rule (opposite side - flower) 21 / 45

41 Measuring inhibitory control (a) Click same side (b) Click opposite side Figure: Hearts and Flowers Learn with easy congruent rule (same side - heart) Second round with difficult incongruent rule (opposite side - flower) Third round with a mixture of stimuli 21 / 45

42 Measuring inhibitory control (a) Click same side (b) Click opposite side Figure: Hearts and Flowers Learn with easy congruent rule (same side - heart) Second round with difficult incongruent rule (opposite side - flower) Third round with a mixture of stimuli Requires selectively overriding the impulse to always click where the stimulus appears 21 / 45

43 Memory 22 / 45

44 Memory overview Definition: Process of encoding, storing, and retrieving information Conceptual distinction: Short-term memory: for active use, forgotten if not rehearsed/used Long-term memory: solidified memories, held in storage Working memory: temporary storage and manipulation of information Memory capacity Short-term capacity: 7 plus or minus 2 Long-term capacity: unlimited? 23 / 45

45 Memory applications Model of memory limitations which explain known biases and empirical puzzles (Mullainathan, 2002) 24 / 45

46 Memory applications Model of memory limitations which explain known biases and empirical puzzles (Mullainathan, 2002) Costs of keeping track, can lead to costly pre-crastinaction (Haushofer, 2015) 24 / 45

47 Memory applications Model of memory limitations which explain known biases and empirical puzzles (Mullainathan, 2002) Costs of keeping track, can lead to costly pre-crastinaction (Haushofer, 2015) Memory may also interact with other cognitive processes and explain puzzling empirical facts, e.g. (Ericson, 2016). 24 / 45

48 Memory applications Most evidence from reminders Health behavior Smoking cessation (Karlan et al., 2016) Adherence to medication (Dulmen et al., 2007) Preventive health behaviors (Krishna et al., 2009) 25 / 45

49 Memory applications Most evidence from reminders Health behavior Smoking cessation (Karlan et al., 2016) Adherence to medication (Dulmen et al., 2007) Preventive health behaviors (Krishna et al., 2009) Financial Savings behavior (Karlan et al., 2016) Loan repayments (Cadena and Schoar, 2011; Karlan et al., 2016) 25 / 45

50 Memory - other potential applications Working memory: broad implications Understanding language Doing mental math Updating information or actions, and considering alternatives Impediments to working memory are associated with increased delay discounting and impulsiveness (Hinson et al., 2003). Limited capacity, constraint likely to bind frequently 26 / 45

51 Measuring memory Figure: Corsi-Block Test 27 / 45

52 Measuring memory Figure: Corsi-Block Test 28 / 45

53 Measuring memory Figure: Corsi-Block Test 29 / 45

54 Measuring memory Figure: Corsi-Block Test 30 / 45

55 Higher-order cognitive functions 31 / 45

56 Higher-order cognitive functions - Overview Less agreement on exact definitions Focus on two areas of particular relevance to economics (1) Cognitive flexibility - ability to adapt to changing circumstances (2) Fluid and crystallized intelligence - ability to reason through novel problems and store of knowledge, respectively 32 / 45

57 Higher-order cognitive functions applications Much less explored, both in theory and empirically But, many potential applications Earnings and labor market outcomes (LaFave and Thomas, 2016) Cooperation and social networks? Which, in turn, can perpetuate poverty traps (Chantarat and Barrett, 2012) Occupational choice? Locational choices for micro-entrepreneurs? Technology adoption? Learning about the impact of factors impeding cognitive function? 33 / 45

58 Higher-order cognitive functions measurement Figure: Raven s Matrices 34 / 45

59 Themes in measurement Broad applicability Relatively independent of crystallized intelligence, schooling, and language 35 / 45

60 Themes in measurement Broad applicability Relatively independent of crystallized intelligence, schooling, and language Ease of measurement Can be administered in challenging environments Many have both paper and pencil and electronic versions Most take less than 10 minutes to instruct and complete 35 / 45

61 Many potential insights Poverty and its correlates can impede cognitive function 36 / 45

62 Many potential insights Poverty and its correlates can impede cognitive function Cognitive function attention, inhibitory control, memory, higher-order functions is readily measurable, even in challenging environments 36 / 45

63 Many potential insights Poverty and its correlates can impede cognitive function Cognitive function attention, inhibitory control, memory, higher-order functions is readily measurable, even in challenging environments Potentially large impacts on decision-making and productivity 36 / 45

64 Many potential insights Poverty and its correlates can impede cognitive function Cognitive function attention, inhibitory control, memory, higher-order functions is readily measurable, even in challenging environments Potentially large impacts on decision-making and productivity Effects may be particularly large and important for the poor 36 / 45

65 Many potential insights Poverty and its correlates can impede cognitive function Cognitive function attention, inhibitory control, memory, higher-order functions is readily measurable, even in challenging environments Potentially large impacts on decision-making and productivity Effects may be particularly large and important for the poor No concrete evidence of a cognitive poverty trap to date, but potentially strong feedback loops. 36 / 45

66 Open questions and next steps (1) Measuring cognitive function Defining different categories Developing and adapting tests (2) Understanding determinants of cognitive function Impact of nutrition, sleep, pain, etc. Can we improve these factors? How large is the impact on cognitive function? Which areas of cognitive function are particularly affected? (3) Estimating the economic consequence of improved cognitive function Diffuse effects Impacts on productivity and utility? (4) Understanding individuals investment behavior and sophistication (Why) do individuals (not) invest adequately in determinants of bandwidth (e.g. nutrition, sleep)? Do people make important decisions at times when bandwidth is high (e.g. when they are not drunk, tired, or hungry)? 37 / 45

67 Thank you! 38 / 45

68 References I Aleem, I. (1990). Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan. World Bank Economic Review 4(3), Ashraf, N., D. Karlan, and W. Yin (2006). Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines. Quarterly Journal of Economics 121(2), Bordalo, P., N. Gennaioli, and A. Shelifer (2013). Salience and Asset Prices. American Economic Review: Papers & Proceedings 103(3), Cadena, X. and A. Schoar (2011). Remembering to Pay? Reminders vs. Financial Incentives for Loan Payments. Working Paper 17020, National Bureau of Economic Research. Chantarat, S. and C. B. Barrett (2012). Social Network Capital, Economic Mobility and Poverty Traps. Journal of Economic Inequality 10, 299âĂŞ / 45

69 References II Chemin, M., J. de Laat, and J. Haushofer (2016). Negative Rainfall Shocks Increase Levels of the Stress Hormone Cortisol Among Poor Farmers in Kenya. mimeo. Duflo, E., M. Kremer, and J. Robinson (2011). Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya. American Economic Review 101(6), Dulmen, S., E. Sluijs, L. Dijk, D. Ridder, R. Heerdink, and J. Bensing (2007). Patient Adherence to Medical Treatment: A Review of Reviews. BMC health services research 7(1), 55âĂŞ 68. Ericson, K. M. (2016). On the Interaction of Memory and Procrastination: Implications for Reminders, Deadlines and Empirical Estimation. Journal of the European Economic Association (forthcoming). Fudenberg, D. and D. K. Levine (2006). A Dual-Self Model of Impulse Control. The American Economic Review 96(5), Gabaix, X. (2014). A Sparcity-Based Model of Bounded Rationality. Quarterly Journal of Economics 129(4), / 45

70 References III Giné, X., D. Karlan, and J. Zinman (2010). Put Your Money Where Your Butt Is: A Commitment Contract for Smoking Cessation. American Economic Journal: Applied Economics 2, 213âĂŞ235. Hanna, R., S. Mullainathan, and J. Schwartzstein (2014). Learning Through Noticing: Theory and Evidence from a Field Experiment. Quarterly Journal of Economics 129(3), 1311âĂŞ1353. Haushofer, J. (2015). The Cost of Keeping Track. mimeo. Haushofer, J. and E. Fehr (2014). On the Psychology of Poverty. Science 344, Haushofer, J., C. Jang, and J. Lynham (2015). Stress and Temporal Discounting: Do Domains Matter? mimeo. Haushofer, J., D. Schunk, and E. Fehr (2013). Negative Income Shocks Increase Discount Rates. mimeo. Hinson, J. M., T. L. Jameson, and P. Whitney (2003). Impulsive Decision Making and Working Memory. Journal of Experimental Psychology: Learning, Memory, and Cognition 29(2), / 45

71 References IV Karlan, D., M. McConnell, S. Mullainathan, and J. Zinman (2016). Getting to the Top of Mind: How Reminders Increase Saving. Management Science. Karlan, D., M. Morten, and J. Zinman (2016). A Personal Touch: Text Messaging for Loan Repayment. Behavioral Science and Policy (forthcoming). Karlan, D. and S. Mullainathan (2010). Debt Cycles. Technical report. Kaur, S., M. Kremer, and S. Mullainathan (2015). Self Control at Work. Journal of Political Economy 123(6), Keys, A., J. Brozek, A. Henschel, O. Mickelsen, and H. L. Taylor (1950). The Biology of Human Starvation. Minneapolis: University of Minnesota Press. Kőszegi, B. and A. Szeidl (2012). A Model of Focusing in Economic Choice. The Quarterly Journal of Economics 128, Kremer, M., J. Lee, J. Robinson, and O. Rostapshova (2013). Behavioral Biases and Firm Behavior: Evidence from Kenyan Retail Shops. American Economic Review: Papers & Proceedings 103(3), / 45

72 References V Krishna, S., S. A. Boren, and E. A. Balas (2009). Healthcare Via Cell Phones: A Systematic Review. Telemedicine and e-health 15(3), LaFave, D. and D. Thomas (2016). Height and Cognition at Work: Labor Market Productivity in a Low Income Setting. NBER Working Paper No. w Laibson, D. (1997). Golden Eggs and Hyperbolic Discounting. Quarterly Journal of Economics 112(2), Lim, J. and D. F. Dinges (2010). A Meta-Analysis of the Impact of Short-Term Sleep Deprivation on Cognitive Variables. Psychological Bulletin 136(3), 375. Mani, A., S. Mullainathan, E. Shafir, and J. Zhao (2013). Poverty Impedes Cognitive Function. Science 341, Moriarty, O., B. E. McGuire, and D. P. Finn (2011). The effect of pain on cognitive function: A review of clinical and preclinical research. Progress in Neurobiology 93, / 45

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74 References VII Sims, C. A. (2003). Implications of Rational Inattention. Journal of Monetary Economics 50, Steele, C. M. and R. A. Josephs (1990). Alcohol Myopia: Its Prized and Dangerous Effects. American Psychologist 45(8), Tzivian, L., A. Winkler, M. Dlugaj, T. Schikowski, M. Vossoughi, K. Fuks, G. Weinmayr, and B. Hoffmann (2015). Effect of Long-Term Outdoor Air Pollution and Noise on Cognitive and Psychological Functions in Adults. International Journal of Hygiene and Environmental Health 218, / 45