The psychology and behavioural economics of poverty Paul Anand a,⇑ , Stephen Lea b a Open University, Economics Department, Milton Keynes MK76AA, United Kingdom b School of Psychology, Washington Singer Laboratories, Exeter University, Exeter EX4 4QG, United Kingdom article info Article history: Received 15 March 2010 Received in revised form 3 November 2010 Accepted 19 November 2010 Available online 7 January 2011 JEL classification: H I Z PsycINFO classification: 3200 3300 3600 3900 Keywords: Psychology Poverty Behavioural economics Quality of life Welfare abstract The paper provides an overview and assessment of an emerging literature on the psychol- ogy and behavioural economics of poverty. We particularly highlight poverty experiences, role of neighbourhoods, poverty dynamics and transmission, child poverty and disability and personal finance. In addition we consider psychology and policy responses by looking and autonomy and empowerment, and poverty reduction programs. Our central thesis is that the detailed knowledge of individual experiences, cognitions and social factors in psy- chology and related social science complements the traditional economic emphasis on structural factors and policy instruments in a way that is exemplified by emerging work in behavioural economics. We conclude it is increasingly recognised that poverty reduction policies which are informed by behavioural insights may, as a result, be more effective. Ó 2011 Published by Elsevier B.V. 1. Introduction – the rise of behavioural insights in poverty analysis An initial motivation for this paper was an interest in trying to identify areas in which psychology can contribute to the development of theories and evidence that help understand poverty and aid the design of policy. For many decades, macro-, trade and regional economics provided key frameworks for the formulation of poverty reduction policies – and indeed they still do. Typically researchers using this analysis have assumed the poor to be rational and have focussed on employment and education as the key escape routes. By contrast the emerging, behavioural approach to poverty has started to look in-depth at the cognitive, motivational and even sociological limits on action. It is more micro in focus, i.e. has a richer description of the individual, and to some extent has a different approach to rational choice. It seems to share with traditional economics, an instrumental approach to ratio- nality – so it assumes that even the poor are means-ends oriented but weakens the assumption that they are all knowing and perfect calculators. 0167-4870/$ - see front matter Ó 2011 Published by Elsevier B.V. doi:10.1016/j.joep.2010.11.004 ⇑ Corresponding author. E-mail address: P.anand@open.ac.uk (P. Anand). Journal of Economic Psychology 32 (2011) 284–293 Contents lists available at ScienceDirect Journal of Economic Psychology journal homepage: www.elsevier.com/locate/joep