Journal
ECONOMIC JOURNAL
Volume 126, Issue 590, Pages 165-188Publisher
OXFORD UNIV PRESS
DOI: 10.1111/ecoj.12210
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Funding
- ESRC-DFID [RES-167-25-0364]
- ESRC [ES/F027443/1, ES/L011719/1] Funding Source: UKRI
- Economic and Social Research Council [ES/F027443/1, ES/L011719/1] Funding Source: researchfish
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We develop a theoretical framework to study the psychology of poverty and aspirations failure', defined as the failure to aspire to one's own potential. In our framework, rich and the poor persons share the same preferences and same behavioural bias in setting aspirations. We show that poverty can exacerbate the effects of this behavioural bias leading to aspirations failure and hence, a behavioural poverty trap. Aspirations failure is a consequence of poverty, rather than a cause. We specify the conditions under which raising aspirations alone is sufficient to help escape from a poverty trap, even without relaxing material constraints.
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