Poverty-Reduction Program Enhances Economic Rationality of the Poor

Abstract：  

While much has been discussed about the poor making bad decisions, little has been done to examine whether their decision making quality can be improved by poverty reduction intervention. We investigate this question based on a multifaceted poverty-reduction program implemented in 2013 in China. With a preset criterion to target low-income households, the program provides a quasi-experimental setting to estimate causal effects.  We conducted a lab-in-the-field experiment in 2018, and measure decision-making quality by economic rationality—the consistency of choices with utility maximization as in revealed preference theory. We find that the program improves economic rationality of the poor, in addition to increasing their income. The results are robust to controlling for economic preferences and beliefs. These findings shed light on behavioural underpinnings of poverty, and have important implications for global poverty alleviation and economic development.

Speaker Biography： 

Zhong Songfa (钟松发) is an associate professor and Dean’s Chair in department of economics at the National University of Singapore. He uses a wide range of methodologies from behavioral economics and experimental economics to genetics and neuroscience to conduct research on decision making, encompassing theory, experiment, and application. Arising from the interdisciplinary nature of his research, Zhong’s works have appeared in economics-oriented journals such as American Economic Review, Econometrica, Management Science, International Economic Review, Review of Economic and Statistics, and Journal of European Economic Association, as well as more biology-oriented ones including Proceedings of the National Academy of Sciences, Neuron, Proceedings of the Royal Society B, and Neuroimage. He is a Coordinating Editor of Theory and Decision. Zhong was a fellow of the Center for Advanced Study in the Behavioral Sciences at Stanford University from 2018 to 2019. Zhong received his BA in accounting from Peking University in 2003 and his PhD in economics from the Hong Kong University of Science and Technology in 2009.