ZME Science
No Result
View All Result
ZME Science
No Result
View All Result
ZME Science

Home → Other → Economics

Decision biases don’t explain why the poor are poor and the rich are rich

The study debunks the idea that economic success is solely due to better decision-making

Mihai AndreibyMihai Andrei
July 6, 2023
in Economics, News
A A
Edited and reviewed by Zoe Gordon
Share on FacebookShare on TwitterSubmit to Reddit

A new study debunks the idea that affluent people become affluent by making good decisions — and the less affluent stay so because of their worse decisions. In fact, according to the research, poor decisions seem to be the same across all income groups. Decision-making alone does not explain economic success.

wealth and poverty

Meritocracy is a strange concept. People seem to believe that meritocracy works (or doesn’t) based on how well they do. Oftentimes, people who enjoy success seem more inclined to believe it was their perceived merits that got them where they are. We’re rich because we deserve it, because we’ve made the right decisions . Meanwhile, on the other hand, those who are less fortunate can get frustrated. They also perceive their merits, yet they are not succeeding — so it must be something else at play.

So how do our decisions influence our economic trajectory?

Good decision, bad decision

To investigate this, a team of researchers from Columbia University surveyed 5,000 participants from 27 countries. They measured participants’ decision-making ability through 10 individual biases, such as:

  • temporal discounting (the ability to forego immediate gains for much larger gains in the future);
  • overestimation (thinking that your decisions are better than they actually are);
  • overplacement (thinking that you’re better than the average person at making decisions).

The research aimed to investigate if cognitive biases in decision making differ between positive deviants (individuals who have overcome low-income backgrounds) and low-income adults, potentially influencing economic mobility. Despite anticipating small-to-moderate effects, the study found no significant differences in cognitive bias rates among these two groups in a sample of nearly 5000 participants from 27 countries.

Essentially, the researchers found the same level of bias and decision-making ability across the entire economic spectrum.

“Our research does not reject the notion that individual behavior and decision-making may directly relate to upward economic mobility. Instead, we narrowly conclude that biased decision-making does not alone explain a significant proportion of population-level economic inequality,” says first author Kai Ruggeri, PhD, assistant professor in the Department of Health Policy and Management at Columbia Public Health.

This contradicts the popular myth that low-income people are more prone to making bad financial decisions. In a vacuum, they are just as good as the other financial brackets at making decisions. It’s their economic starting point that makes all the difference, the researchers conclude.

RelatedPosts

This $10 Hack Can Transform Old Smartphones Into a Tiny Data Center
Archaeologists unearth what looks like the 2nd Viking Settlement in North America
Around 40% of gun owners don’t keep guns at home hidden or locked
What is chromium, the hardest metal on Earth

“Low-income individuals are not uniquely prone to cognitive biases linked to bad financial decisions. Instead, scarcity is more likely a greater driver of these decisions,” Ruggeri adds.

Addressing inequality

In a world where economic inequality seems to be accelerating, the findings are highly significant. They suggest that, on average, the rich and the poor make equally good decisions. The main difference maker is already-existing poverty. This poverty creates a climate more conducive to making decisions that are worse in the long-run. Meanwhile, having a financial cushion can give people the stability to make better long-term decisions. For policy makers looking to reduce inequality and poverty, this is extremely important.

Of course, a survey on 5,000 people is not enough to settle the issue, but the findings are consistent with previous work. For instance, earlier research suggested that temporal discounting is tied more to the broader societal economic environment, and not individual financial circumstances. This means that people’s decision-making regarding immediate versus future rewards tends to be influenced more by their overall economic success.

While it acknowledges the impact of factors like economic inequality and financial behaviors on decision-making, the study suggests that broader interventions combining both behavioral and structural measures are necessary to improve financial well-being across populations. These findings challenge the efficacy of behavioral interventions targeting disadvantaged groups, and call for comprehensive policies that address systemic barriers and provide necessary resources and opportunities.

There are, of course, limitations to the study. In addition to the sample size, the study only measured a narrow set of biases, without considering factors like personality, resilience, numeracy, personal beliefs, or financial literacy. These factors could potentially impact results if included in future research.

Ultimately, however, the research suggests that poorer individuals are not uniquely prone to cognitive biases — and these biases alone can’t explain protracted poverty. If we want to truly address these economic issues, we have to look elsewhere.

The study was published in Nature Scientific Reports.

ShareTweetShare
Mihai Andrei

Mihai Andrei

Dr. Andrei Mihai is a geophysicist and founder of ZME Science. He has a Ph.D. in geophysics and archaeology and has completed courses from prestigious universities (with programs ranging from climate and astronomy to chemistry and geology). He is passionate about making research more accessible to everyone and communicating news and features to a broad audience.

Related Posts

Climate

Methane Leaks from Fossil Fuels Hit Record Highs. And We’re Still Looking the Other Way

byMihai Andrei
48 minutes ago
SNR 0509-67.5
News

Astronomers Found a Star That Exploded Twice Before Dying

byJordan Strickler
2 hours ago
Environment

This Enzyme-Infused Concrete Could Turn Buildings into CO2 Sponges

byTudor Tarita
3 hours ago
Science

Buried in a Pot, Preserved by Time: Ancient Egyptian Skeleton Yields First Full Genome

byMihai Andrei
14 hours ago

Recent news

Methane Leaks from Fossil Fuels Hit Record Highs. And We’re Still Looking the Other Way

July 3, 2025
SNR 0509-67.5

Astronomers Found a Star That Exploded Twice Before Dying

July 3, 2025

This Enzyme-Infused Concrete Could Turn Buildings into CO2 Sponges

July 3, 2025
  • About
  • Advertise
  • Editorial Policy
  • Privacy Policy and Terms of Use
  • How we review products
  • Contact

© 2007-2025 ZME Science - Not exactly rocket science. All Rights Reserved.

No Result
View All Result
  • Science News
  • Environment
  • Health
  • Space
  • Future
  • Features
    • Natural Sciences
    • Physics
      • Matter and Energy
      • Quantum Mechanics
      • Thermodynamics
    • Chemistry
      • Periodic Table
      • Applied Chemistry
      • Materials
      • Physical Chemistry
    • Biology
      • Anatomy
      • Biochemistry
      • Ecology
      • Genetics
      • Microbiology
      • Plants and Fungi
    • Geology and Paleontology
      • Planet Earth
      • Earth Dynamics
      • Rocks and Minerals
      • Volcanoes
      • Dinosaurs
      • Fossils
    • Animals
      • Mammals
      • Birds
      • Fish
      • Amphibians
      • Reptiles
      • Invertebrates
      • Pets
      • Conservation
      • Animal facts
    • Climate and Weather
      • Climate change
      • Weather and atmosphere
    • Health
      • Drugs
      • Diseases and Conditions
      • Human Body
      • Mind and Brain
      • Food and Nutrition
      • Wellness
    • History and Humanities
      • Anthropology
      • Archaeology
      • History
      • Economics
      • People
      • Sociology
    • Space & Astronomy
      • The Solar System
      • Sun
      • The Moon
      • Planets
      • Asteroids, meteors & comets
      • Astronomy
      • Astrophysics
      • Cosmology
      • Exoplanets & Alien Life
      • Spaceflight and Exploration
    • Technology
      • Computer Science & IT
      • Engineering
      • Inventions
      • Sustainability
      • Renewable Energy
      • Green Living
    • Culture
    • Resources
  • Videos
  • Reviews
  • About Us
    • About
    • The Team
    • Advertise
    • Contribute
    • Editorial policy
    • Privacy Policy
    • Contact

© 2007-2025 ZME Science - Not exactly rocket science. All Rights Reserved.