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Economic models of decision making assume that people have a stable way of thinking about value. In contrast, psychology has shown that people’s preferences are often malleable and influenced by normatively irrelevant contextual features. Whereas economics derives its predictions from the assumption that people navigate a world of scarce resources, recent psychological work has shown that people often do not attend to scarcity. In this article, we show that when scarcity does influence cognition, it renders people less susceptible to classic context effects. Under conditions of scarcity, people focus on pressing needs and recognize the trade-offs that must be made against those needs. Those trade-offs frame perception more consistently than irrelevant contextual cues, which exert less influence. The results suggest that scarcity can align certain behaviors more closely with traditional economic predictions. [ABSTRACT FROM PUBLISHER]

The term "money illusion" refers to a tendency to think in terms of nominal rather than real monetary values. Money illusion has significant implications for economic theory, yet it implies a lack of rationality that is alien to economists. This paper reviews survey questions regarding people's reactions to variations in inflation and prices, designed to shed light on the psychology that underlies money illusion. We propose that people often think about economic transactions in both nominal and real terms, and that money illusion arises from an interaction between these representations, which results in a bias toward a nominal evaluation. [ABSTRACT FROM AUTHOR]

The poor are universally stigmatized. The stigma of poverty includes being perceived as incompetent and feeling shunned and disrespected. It can lead to cognitive distancing, diminish cognitive performance, and cause the poor to forego beneficial programs. In the present research, we examined how self-affirmation can mitigate the stigma of poverty through randomized field experiments involving low-income individuals at an inner-city soup kitchen. Because of low literacy levels, we used an oral rather than written affirmation procedure, in which participants verbally described a personal experience that made them feel successful or proud. Compared with nonaffirmed participants, affirmed individuals exhibited better executive control, higher fluid intelligence, and a greater willingness to avail themselves of benefits programs. The effects were not driven by elevated positive mood, and the same intervention did not affect the performance of wealthy participants. The findings suggest that self-affirmation can improve the cognitive performance and decisions of the poor, and it may have important policy implications. [ABSTRACT FROM PUBLISHER]

The poor often behave in less capable ways, which can further perpetuate poverty. We hypothesize that poverty directly impedes cognitive function and present two studies that test this hypothesis. First, we experimentally induced thoughts about finances and found that this reduces cognitive performance among poor but not in well-off participants. Second, we examined the cognitive function of farmers over the planting cycle. We found that the same farmer shows diminished cognitive performance before harvest, when poor, as compared with after harvest, when rich. This cannot be explained by differences in time available, nutrition, or work effort. Nor can it be explained with stress: Although farmers do show more stress before harvest, that does not account for diminished cognitive performance. Instead, it appears that poverty itself reduces cognitive capacity. We suggest that this is because poverty-related concerns consume mental resources, leaving less for other tasks. These data provide a previously unexamined perspective and help explain a spectrum of behaviors among the poor. We discuss some implications for poverty policy. [ABSTRACT FROM AUTHOR]