Poverty has a way of perpetuating itself. The reasons are many, but one is that people facing poverty sometimes make self-defeating decisions. Most lottery tickets and payday loans, for example, are bought by the poor. These cycles of poverty leading to bad decisions, which in turn deepen poverty, have sometimes been used to blame the poor for their own plight. But research in Dr. Keith Payne’s laboratory, in collaboration with former UNC student Dr. Jazmin Brown-Iannuzzi and current UNC doctoral student Jason Hannay, suggests that such risky decisions are a side-effect of a generally adaptive way that people respond to inequality in their environments. High levels of inequality can itself cause self-defeating decisions, not only among the poor, but also among middle class people who feel poor by comparison to the very wealthy.
In a series of experiments, Dr. Payne and his research team found that research participants were more likely to choose high risk/high reward gambles when the distribution of winnings for other players was highly unequal. The reason was that participants compared their own prospects to other players, but they selectively compared upward to those who had earned more than them. When inequality was high, participants chose high risk/high reward options in an effort to catch up to the winners. But when inequality was lower, participants made more moderate decisions. Although a few participants who took the high risk strategy won large payoffs, most won nothing, thus perpetuating the inequality in the game.
Does decision-making in this economic game capture how inequality affects decisions in real life? To answer this question, Dr. Payne turned to “big data.” He examined millions of Google search terms to estimate how often people searched for high risk/high reward ways to make money, such as “payday loan” and “lottery”. Then, Dr. Payne compared the frequency of high risk searches in each state to the level of income inequality in each state. As expected, states with high income inequality had higher rates of high risk searches (see the figure on the right). This relationship held after controlling of other factors, such as the average income, population size, and population density of each state.
Dr. Payne’s research suggests that apparently self-defeating decisions can result from the normal tendency to compare to others and try to keep up with those who are successful. In ongoing research, Dr. Payne is examining whether this effect of inequality on risky decisions extends beyond financial decisions to affect health risk behaviors as well. An important implication of this research is that contexts with high inequality encourage risky behavior. Rather than resulting from individual flaws, such decision strategies may be a response to unequal environments that affects any given person who inhabits unequal environments.
Dr. Keith Payne is Professor in the Social Psychology Program within the Department of Psychology and Neuroscience at UNC Chapel Hill. He studies the psychology of inequality and discrimination. He is the author of “The Broken Ladder: How Inequality Affects the Way We Think, Live, and Die.” Learn more about his research online.
Citation:
Payne, B. K., Brown-Iannuzzi, J. L., & Hannay, J. W. (2017). Economic inequality increases risk taking. Proceedings of the National Academy of Sciences, 114, 4643-4648.