Does Poverty Make Us Smarter? Rethinking Rationality Under Scarcity

Why This Question Matters

As inflation and living costs continue to rise across the globe, many households are rethinking their spending habits. People are finding new ways to stretch their budgets: from shopping at discount grocery chains to mastering the art of batch cooking, optimizing point systems, or cutting down subscriptions.

This shift gives rise to an intriguing question:
Does financial hardship make people smarter with their choices?

At first glance, it seems logical. Less money means you must be more resourceful. But the real answer is far more nuanced.

Study #1: When Price Filters Behavior — The Zambia Field Experiment

The Setup

In a widely cited field study by Harvard researchers (Ashraf, Berry, Shapira), households in Zambia were given access to Clorin, a basic water purification product. Some received it for free, others were asked to pay a small price.

The researchers wanted to see whether charging even a nominal price would change behavior — would people be more likely to use the product if they paid for it?

The Findings

• When Clorin was given away, many households accepted it, but usage was inconsistent.
• When Clorin came with a small fee, fewer households took it — but those who did were more likely to actually use it.

What This Tells Us

Price acted as a screening mechanism — filtering out those who were less committed or less informed.
Interestingly, the study also found little evidence of a sunk cost effect (i.e., people using it just because they paid). Instead, it was about intention and need.

In other words: raising the cost doesn’t automatically make people smarter, but it does shift behavior toward more deliberate choices.

Study #2: Electricity Pricing and Sustained Behavior Change

The Natural Experiment

Another major study by Deryugina, MacKay, and Reif used real-world data from over 250 towns in Illinois, USA.
Due to municipal aggregation programs, households experienced long-term changes in their electricity prices, allowing researchers to measure how people reacted over time.

What They Discovered

• In the short term, households reduced energy use when prices went up.
• In the long term, those reductions persisted — but only for some groups.
• Higher-income or more educated households were better at sustaining behavioral change.

Takeaway

This study shows that scarcity can lead to smarter usage, but sustained change depends on literacy, awareness, and capacity to adapt. It’s not purely about willpower — it’s about tools and context.

Behavioral Economics: Why “Being Rational” Isn’t So Easy

Despite the examples above, humans are not naturally rational decision-makers, especially under pressure. Decades of behavioral science have documented consistent “irrational” tendencies that shape consumer behavior:

Common Biases That Work Against “Smart Spending”

• Loss Aversion: People fear losses more than they value gains, making them cling to old habits (e.g., keeping expensive subscriptions).
• Status Quo Bias: Many prefer “not changing” over trying something unfamiliar, even if it saves money.
• Sunk Cost Fallacy: We continue bad spending habits because we’ve already invested time or money.
• Social Proof: If others are spending, we feel justified doing the same — even when it’s irrational.

🌀 Add to this: time, attention, and mental bandwidth are limited resources, especially for the poor.
A study from MIT showed that financial stress can temporarily reduce cognitive function by 10–13 IQ points — that’s how mentally taxing poverty can be.

What “Getting Smarter” Looks Like in the Real World

While not everyone adapts efficiently under financial stress, many households do find creative ways to optimize their lives. Let’s look at a few behaviors that represent “practical intelligence” in the face of scarcity.

Shift #1: Changing How People Buy

• Using cashback or points platforms to get rebates on everyday purchases
• Tracking supermarket “lowest prices” to plan bulk purchases
• Joining bulk-buying communities or co-op systems

This isn’t just frugality — it’s strategic thinking under constraint. In a way, money shortages push some people to adopt behavior that resembles micro-optimization, a form of everyday decision-making that maximizes utility with minimal waste.

Shift #2: Changing What People Value

• Cutting back on restaurant meals and mastering home cooking (e.g., meal-prepping)
• Switching from conspicuous consumption (luxury goods) to cost-performance logic (e.g., “one good jacket, everyday basics”)
• Spending less on “stuff” and more on experiences or self-development

🌀 Importantly, these shifts often represent a change in mindset — not just a survival response, but a redefinition of value.

Rethinking the “Poor People Make Bad Decisions” Narrative

Behavioral economics has often highlighted how poverty leads to suboptimal decisions. But recent thinking challenges that frame. Rather than being “less rational,” low-income individuals often:

• Lack access to timely information
• Face higher costs for being cautious (e.g., time to compare prices, apply for aid)
• Have less margin for trial and error

For example, research shows that even when subsidies or programs exist, many don’t use them simply because they don’t know they qualify, or the process is too complex.

In that sense, “smart behavior” depends less on intelligence and more on access, capacity, and bandwidth.

Collective Intelligence: Smartness Through Sharing

One of the most remarkable byproducts of rising costs is the rise of collective problem-solving:

• YouTube channels sharing budgeting tips
• Reddit threads comparing “real” vs. “hyped” products
• Social media challenges gamifying saving (e.g., #NoSpendMonth, budget bingo)
• Online communities exposing manipulative marketing or subscription traps

These networks don’t just spread tips — they foster a new kind of digital literacy, where critical thinking and transparency are the new currency.

So… Can Poverty Make People Smarter?

Yes — but not always, and not automatically.

The Key Conditions Are:

• Time to evaluate choices
• Access to accurate information and tools
• Psychological space to reflect rather than react
• Social or institutional support to sustain behavioral change

In the absence of these, people may default to emotional decisions or short-term relief behaviors (e.g., payday loans, brand loyalty, impulsive purchases).
But when these supports exist, economic stress can catalyze deeper awareness, intentionality, and resilience.

Conclusion: Smartness Is Not Just a Trait — It’s a Contextual Privilege

People don’t become smart because they’re poor. They become resourceful despite poverty — when the environment allows them to.
We shouldn’t romanticize hardship, but we can respect the ingenuity it sometimes produces.

For policymakers, brands, and systems designers, this raises a challenge:

How do you build a world where “smart choices” aren’t just available to the privileged?

🔗 References

• Can Higher Prices Stimulate Product Use? (Harvard/NBER)
• The Long-Run Dynamics of Electricity Demand (NBER)
• Scarcity: Why Having Too Little Means So Much (Mullainathan & Shafir)