Abstract:

According to the most recent World Bank’s statistics available, 767 million people on the planet are in poverty (World Bank, 2016). Further, among individuals and/or their families who are in poverty, some individuals and /or their families are able to escape from poverty, while others will continue to remain in poverty. Various behavioural theorists have sought to explain why individuals and their families remain in poverty. Banerjee and Mullainathan (2010) posit that poor individuals focus disproportionately on the present consumption and are not inclined to undertake small high yield investments. As such, the poor remain poor. Another explanation is that scarcity in terms of time or resources changes how people allocate attention. In particular, the poor’s attention and financial decision making is biased towards meeting daily needs, which may allow them to meet their needs today, but often involves a high monetary cost in the future, the poor remains poor (Shah, Mullainathan, & Shafir, 2012). An application of Shah, Mullainathan and Shafir’s (2012) theory can be seen in the case of high interest short term borrowing, a financial practice which is common among the poor. In high interest short term borrowing, it is easier to meet immediate needs, but difficult to make ends meet subsequently, due to the high interest levied. However, explanations in the behavioural poverty trap literature are silent on the neural mechanisms that may account for the poverty trap. The present study, proposes that executive function, a “set of higher-order cognitive processes that govern goal-directed action, and adaptive responses to novel, complex, or ambiguous situations” (Hughes, Graham, & Grayson, 2005), may be instrumental in breaking the poverty trap. Further, as the poverty cycle is essentially a poverty trap that persists inter-generationally, by breaking the poverty trap, we might be able to break the poverty cycle.