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Community trust reduces myopic decisions of low-income individuals

Accepted version
Peer-reviewed

Type

Article

Change log

Authors

Jachimowicz, JM 
Chafik, S 
Munrat, S 
Prabhu, JC 
Weber, EU 

Abstract

Why do the poor make shortsighted choices in decisions that involve delayed payoffs? Foregoing immediate rewards for larger, later rewards requires that decision makers (i) believe future payoffs will occur and (ii) are not forced to take the immediate reward out of financial need. Low-income individuals may be both less likely to believe future payoffs will occur and less able to forego immediate rewards due to higher financial need; they may thus appear to discount the future more heavily. We propose that trust in one’s community—which, unlike generalized trust, we find does not covary with levels of income—can partially offset the effects of low income on myopic decisions. Specifically, we hypothesize that low-income individuals with higher community trust make less myopic intertemporal decisions because they believe their community will buffer, or cushion, against their financial need. In archival data and laboratory studies, we find that higher levels of community trust among low-income individuals lead to less myopic decisions. We also test our predictions with a 2-y community trust intervention in rural Bangladesh involving 121 union councils (the smallest rural administrative and local government unit) and find that residents in treated union councils show higher levels of community trust and make less myopic intertemporal choices than residents in control union councils. We discuss the implications of these results for the design of domestic and global policy interventions to help the poor make decisions that could alleviate poverty.

Description

Keywords

temporal discounting, poverty alleviation, trust

Journal Title

Proceedings of the National Academy of Sciences of the United States

Conference Name

Journal ISSN

0027-8424
1091-6490

Volume Title

114

Publisher

National Academy of Sciences
Sponsorship
This research was made possible in part by a Cambridge Judge Business School small grant, the research facilities provided by the Center for Decision Sciences at Columbia University, and the support of the German National Academic Foundation