How Poverty Engenders Irrational Economic Behavior: An Analysis of Psychological and Economic Behavior of Marginalized Communities

Neel Malhotra

The psychological consequences of poverty are far-reaching – even constraining the economic choice patterns of these underserved communities. Through various interactions with these communities in Mumbai, I realized that it is the mindset of the inhabitants in these underserved communities, their ignorance towards health, which leads them to inefficiently allocate their limited amount of money and make short-sighted and risk-averse decisions which usually favor habitual behaviors than goal-oriented ones.

This research study attempts to analyze the economic choice patterns (their inefficient decision-making) of the marginalized communities to understand what deters them from availing facilities that improve their health, such as water purifiers.

This Research study primarily attempts to delve deeper into the following:

1. Lack of awareness for the importance of health in these marginalized communities.
2. The behavioural expenditure pattern of these families and their inefficient financial resources allocation.

A survey[1] was conducted across 100 families across four different slum clusters to capture the data on the demographic profile with emphasis on women who are the decision makers of the families and are more concerned towards the well-being of the family, and the awareness about general health issues. Moreover, financial data and their expenditure pattern were collected under different arenas starting with income, rent, Food, education, medical expenses, transportation, entertainment, savings, etc. The findings were almost similar across families and the data revealed that there was no significant problem of awareness on health issues as well as education, but the lack of resources as well as the limited resources was the most constraining factor for doing investments that will protect their future health. The irrational economic behavior is a cause, or an effect of poverty does not get established and was only reasonably inferred in this case study -  and needs more empirical studies on a larger sample. These families live by the day and any surplus or saving after meeting the necessities is spent on either demerit goods such as Alcohol and Cigarettes (by men) or entertainment and related stuff. This distorted economic behavior is the cause of the “Poverty trap”. This Research study, thought limited to a small area as compared to the size of Mumbai, is representative of the general ideology of poverty-ridden households and is thus a microcosm of a larger case study that would entail analyzing the behavioral pattern of thousands and lakhs of households.

https://doi.org/10.31871/IJNTR.4.9.20