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Despite manifold policy interventions, poverty still exists. Those most harshly affected are people living in rural areas of low‐income countries. A seminal strand in the literature presents a promising avenue for analyzing the lives of the poor by suggesting that poverty impedes cognitive function. However, the real‐world consequences of impeded cognitive function are yet to be discovered. We ask whether the level of cognitive function can help to explain the differences in economic performance of the poor. We conducted a field study in rural Cambodia using the well‐established Raven's Progressive Matrix to elicit cognitive function. Employing stochastic frontier analysis, we find that the level of cognitive function of poor smallholder farmers helps in explaining differences in economic performance. Our findings suggest that impeded cognitive function results in a negative economic performance feedback loop, which can be a reason why some farmers appear to be stuck in poverty while others manage to escape it. [ABSTRACT FROM AUTHOR]

Spending money on goods that satisfy oneself at the moment but not necessarily in the future – temptation goods – is a bothersome habit that applies to most people. However, with very low income, spending on temptation goods can potentially trap a household in chronic poverty, as such spending further minimizes the little financial resources crucially needed. Yet, although studies have included temptation goods into their household analysis, there is no empirical in-depth investigation of what exactly is perceived as a temptation good by one of the most marginalized groups: smallholder farmers residing in the Global South. Therefore, employing descriptive statistics and hierarchical cluster analysis, this paper presents an empirical definition of temptation goods provided by 277 smallholder farmers from rural Cambodia. Our findings partly differ from those found in the literature. For example, while farmers most frequently perceive alcohol, tobacco, and sweets as tempting, they also define unexpected items such as communication, recreation and entertainment, fruit, clothes, and going to the hairdresser as temptation goods. The results hold strong importance for accurate calculations and to understand the often puzzling spending behaviour of the poor, as well as coming up with custom-fit policy interventions that promote long-term welfare-increasing consumption behaviour. [ABSTRACT FROM AUTHOR]