Poor and rational: Decision-making under scarcity

Abstract: A growing literature associates poverty with anomalies in decision-making. We investigate this link in a sample of over 3,000 small-scale farmers in Zambia, who were given the opportunity to exchange randomly assigned household items for alternative items of similar value. Analyzing a total of 5,842 trading decisions over a range of items, including cash, we show that exchange asymmetries are sizable and remarkably robust across items and experimental procedures. Using cross sectional, seasonal and randomized variation in financial resource availability, we show that exchange asymmetries decrease in magnitude when subjects are more constrained. Consistent with the interpretation that variation in decision stakes drive our results, we also show that trading probabilities increase when the value of the items involved is exogenously increased.

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• Kelsey Jack