Course outline
Module 1
Module 1: Defining Poverty Beyond Income
Defining Poverty Beyond Income
Knowledge check
Q1. Which of the following best describes poverty when it is defined beyond income alone?
- A. Having less than a fixed dollar amount per day
- B. A lack of access to resources, opportunities, and capabilities needed for a dignified standard of living
- C. Being unemployed for more than six months
- D. Owning fewer assets than the national median
Q2. Amartya Sen's capability approach views poverty primarily as:
- A. A shortage of consumer goods in a household
- B. A deprivation of the substantive freedoms people have to live lives they have reason to value
- C. A temporary condition caused by a single economic shock
- D. The result of individual laziness or poor decision-making
Q3. Which dimension is commonly included in multidimensional poverty measures such as the Multidimensional Poverty Index?
- A. Stock market participation
- B. Years of schooling, health, and living standards
- C. Number of social media followers
- D. Frequency of international travel
Q4. Why is income alone considered an incomplete measure of poverty?
- A. Income is always impossible to measure accurately
- B. Two people with the same income may face very different access to health care, education, and safe housing
- C. Income never affects a person's wellbeing
- D. Governments do not collect income data
Q5. Which term refers to the experience of being unable to participate fully in the customary activities of one's society?
- A. Relative deprivation
- B. Fiscal surplus
- C. Income elasticity
- D. Comparative advantage
Module 2
Module 2: How Scarcity Captures Attention
How Scarcity Captures Attention
Knowledge check
Q1. According to the scarcity literature, what is the primary way scarcity affects attention?
- A. It makes people more forgetful about long-term plans
- B. It pulls attention toward pressing immediate needs, crowding out other concerns ✓
- C. It increases general intelligence and problem-solving speed
- D. It causes people to ignore all financial information completely
Why: Scarcity research (e.g., Mullainathan and Shafir) shows that when a need is pressing, attention is captured by it, leaving less mental bandwidth for other tasks and goals.
Q2. What is 'tunneling' in the context of scarcity?
- A. Investing savings in underground assets
- B. Focusing narrowly on the most urgent problem while neglecting other important decisions ✓
- C. Borrowing money from informal lenders
- D. Planning several years of household budgets in advance
Why: Tunneling describes the tendency of scarce individuals to concentrate attention narrowly on the most pressing issue, which can cause them to overlook other matters that deserve consideration.
Q3. Which experiment is commonly cited to show that scarcity reduces cognitive bandwidth?
- A. A study of sugar-cane farmers whose cognitive performance was measured before and after harvest ✓
- B. A survey of retirees' spending habits in Florida
- C. A trial testing whether students learn faster with music
- D. An analysis of stock market volatility during recessions
Why: Mani et al. (2013) studied Indian sugar-cane farmers and found their cognitive test performance was lower before harvest, when money was scarce, than after harvest, when they had income.
Q4. Why might scarcity-driven attention capture lead to poor financial decisions?
- A. Because people with scarce resources never face any choices
- B. Because attention diverted to urgent needs can cause neglect of longer-term consequences, such as fees or future costs ✓
- C. Because scarcity makes all financial products cheaper
- D. Because scarce individuals always save too much money
Why: When attention is consumed by immediate pressures, people may miss details like late fees or long-term costs, making decisions that look shortsighted from the outside but are often a rational response to limited bandwidth.
Q5. Which of the following best describes the 'scarcity mindset' as a cognitive state?
- A. A permanent personality trait that cannot change
- B. A temporary state in which attention is captured by unmet needs, reducing capacity for other thinking ✓
- C. A deliberate strategy adopted by wealthy people to save money
- D. A condition that only affects people who have never worked
Why: The scarcity mindset is best understood as a situational state triggered by perceived shortfalls, one that temporarily absorbs attention, rather than a fixed trait inherent to a person.
Module 3
Module 3: The Cognitive Cost of Scarcity
The Cognitive Cost of Scarcity
Knowledge check
Q1. According to research by Mullainathan and Shafir, what is a key idea behind the 'cognitive cost of scarcity'?
- A. Scarcity makes people more patient and better at long-term planning
- B. Scarcity occupies mental bandwidth, leaving fewer cognitive resources for other decisions ✓
- C. Scarcity has no measurable effect on decision-making ability
- D. Scarcity only affects people who are born into poverty
Why: Mullainathan and Shafir argue that worrying about unmet needs consumes mental bandwidth, reducing the cognitive resources available for planning, attention, and self-control.
Q2. The 'tunneling' concept in scarcity research refers to:
- A. Digging physical shelters during economic crises
- B. A tendency to focus narrowly on the most pressing needs while neglecting other important concerns ✓
- C. Borrowing money from informal lenders
- D. A government program that channels aid to specific regions
Why: Tunneling describes how scarcity pushes people to focus intensely on immediate problems, which can cause them to neglect longer-term or less urgent matters.
Q3. In the classic Mullainathan and Shafir sugarcane farmers study, what was observed about farmers before and after harvest?
- A. Farmers performed equally well on cognitive tests at all times of year
- B. Farmers performed worse on fluid intelligence tests before harvest, when money was scarce ✓
- C. Farmers performed better on tests before harvest, when they were most anxious
- D. Farmers' test performance was unaffected by their income cycle
Why: Farmers scored lower on cognitive tests before harvest, when they faced financial strain, and higher after receiving income, suggesting scarcity temporarily impairs cognitive function.
Q4. Which of the following is an example of how scarcity can impair cognitive function in everyday life?
- A. A person who forgets to pay a bill because their mind is preoccupied with juggling multiple financial pressures ✓
- B. A person who carefully budgets and plans each week without difficulty
- C. A person who saves money consistently in a high-interest account
- D. A person who has no financial obligations and feels calm about the future
Why: Forgetting a bill while managing many financial pressures illustrates how the mental load of scarcity crowds out attention and memory for other tasks.
Q5. Why do researchers argue that the cognitive effects of scarcity should not be attributed simply to poor character or bad decisions?
- A. Because scarcity physically changes brain structure permanently
- B. Because scarcity imposes cognitive load that limits the mental resources needed for good decisions, regardless of individual ability ✓
- C. Because people in poverty never make decisions at all
- D. Because financial problems are always caused by external factors alone
Why: The scarcity framework shows that the constraint itself reduces available mental bandwidth, so similar people can make worse decisions under scarcity than they would otherwise, rather than reflecting a flaw in character.
Module 4
Module 4: Decision-Making Under Financial Strain
Decision-Making Under Financial Strain
Knowledge check
Q1. According to scarcity research, what is the primary effect of financial strain on cognitive functioning?
- A. It improves long-term planning because people become more disciplined
- B. It consumes mental bandwidth, leaving fewer cognitive resources for other decisions
- C. It has no measurable effect on attention or problem-solving
- D. It only affects emotional well-being, not thinking processes
Q2. What is 'tunneling' in the context of scarcity psychology?
- A. Investing savings into underground or hidden financial instruments
- B. A tendency to focus narrowly on the most pressing needs while neglecting other goals
- C. Borrowing money from family members instead of banks
- D. A strategy of saving money by moving to cheaper neighborhoods
Q3. Which of the following best describes a 'present bias' in decision-making under financial strain?
- A. Preferring to pay for goods in cash rather than by card
- B. Overweighting immediate rewards or needs relative to larger future benefits
- C. Believing that the present economic climate will last indefinitely
- D. Giving gifts to others during the holiday season
Q4. Why might a person facing financial scarcity choose a payday loan with high interest rates?
- A. Because they have fully calculated the long-term cost and find it acceptable
- B. Because the immediate need is salient and the future repayment burden is discounted or underestimated
- C. Because payday lenders are required by law to offer the lowest rates available
- D. Because interest rates do not affect people who earn low incomes
Q5. What does the 'scarcity mindset' suggest about how people respond when they have less money than they need?
- A. They become more generous and share resources more freely
- B. They tend to make short-term decisions that can perpetuate their financial difficulties
- C. They become indifferent to financial outcomes altogether
- D. They consistently make optimal decisions because stress sharpens focus
Module 5
Module 5: Scarcity and Self-Control
Scarcity and Self-Control
Knowledge check
Q1. According to research on scarcity, what is a common effect of having limited financial resources on mental bandwidth?
- A. It increases long-term planning ability
- B. It consumes cognitive resources, leaving less available for other tasks
- C. It has no measurable effect on decision-making
- D. It makes people more patient when making choices
Q2. What does the term 'tunneling' describe in the psychology of scarcity?
- A. Investing in underground infrastructure projects
- B. Focusing intensely on the most pressing needs while neglecting other concerns
- C. Planning for the distant future with great detail
- D. Avoiding all financial decisions to reduce stress
Q3. In the context of self-control, what is 'present bias'?
- A. A preference for immediate rewards over larger delayed rewards
- B. A tendency to remember recent events more clearly
- C. A belief that the present moment is the most important
- D. An inability to focus on tasks in the current day
Q4. Why might a person facing scarcity find it harder to exercise self-control in unrelated areas, such as diet or saving?
- A. Scarcity makes people lose interest in all goals
- B. Limited mental bandwidth is depleted by constant financial worry, reducing capacity for other self-regulation
- C. Scarcity reduces the body's need for food and rest
- D. People in scarcity always prefer to spend rather than save by default
Q5. Which of the following is an example of a policy designed to reduce the self-control burden of scarcity?
- A. Requiring people to make more complex financial decisions
- B. Automatic enrollment in savings plans with default contribution rates
- C. Delaying all benefit payments until the end of the year
- D. Eliminating all reminders about bill payment deadlines
Module 6
Module 6: Breaking the Cycle: Mindset and Policy
Breaking the Cycle: Mindset and Policy
Knowledge check
Q1. In the scarcity literature, what is the term for the reduced cognitive capacity that occurs when people are preoccupied with pressing financial worries?
- A. Cognitive dissonance
- B. Bandwidth tax ✓
- C. Sunk cost fallacy
- D. Confirmation bias
Why: Mullainathan and Shafir describe scarcity as imposing a 'bandwidth tax': worries about unmet needs consume mental resources that would otherwise go to planning, problem-solving, and self-control.
Q2. Which program design feature is most consistent with research on scarcity and automatic decision-making?
- A. Requiring recipients to submit monthly paper forms to verify eligibility
- B. Default enrollment in savings plans that participants can opt out of ✓
- C. Mandatory financial literacy lectures before any benefit is received
- D. Lengthy application processes that test applicants' motivation
Why: Default options exploit inertia and reduce the cognitive load of decisions. Automatic enrollment in savings plans has substantially raised participation, especially among lower-income workers.
Q3. What does the 'tunneling' concept in scarcity research describe?
- A. People focusing narrowly on the most urgent problems at the expense of longer-term concerns ✓
- B. Families moving repeatedly between neighborhoods in search of cheaper housing
- C. Governments channeling aid through a single centralized agency
- D. Individuals exploring many career paths before committing to one
Why: Tunneling refers to the tendency of scarce resource holders to attend mainly to the immediate, pressing demands in front of them, making it harder to plan for future needs.
Q4. Which statement best reflects the 'mindset' critique of anti-poverty policy that many scholars raise?
- A. Poor people lack the intelligence needed to manage money effectively
- B. Structural constraints, not individual character flaws, drive many poverty-related decisions, so policy should address the environment ✓
- C. Cash transfers always reduce recipients' motivation to work
- D. Psychological interventions are unnecessary because income alone solves poverty
Why: The scarcity and mindset perspective argues that behavior in poverty is largely a rational response to constrained circumstances, so effective policy should reshape those circumstances rather than blame individuals or rely solely on willpower interventions.
Q5. Why might unconditional cash transfers be particularly relevant to the psychology of scarcity?
- A. They require recipients to demonstrate financial discipline before receiving funds
- B. They reduce the chronic financial stress that consumes cognitive bandwidth, potentially improving decision-making ✓
- C. They are cheaper to administer than in-kind benefits
- D. They eliminate the need for any other social services
Why: By providing predictable, flexible resources, cash transfers can relieve the constant pressure of scarcity, which research suggests may free mental resources for planning and reduce stress-driven decisions.
Module 7
Module 7: Designing Programs That Respect Scarcity
Designing Programs That Respect Scarcity
Knowledge check
Q1. According to research on the psychology of scarcity, what is one common effect of being under financial pressure on cognitive functioning?
- A. It improves long-term planning because people become more disciplined.
- B. It consumes mental bandwidth, reducing the capacity available for other tasks such as problem-solving and self-control.
- C. It has no measurable effect on decision-making when people are motivated enough.
- D. It primarily affects physical health but leaves cognitive performance unchanged.
Q2. Why do program designers who respect scarcity often reduce the number of steps required to apply for benefits?
- A. Fewer steps lower administrative costs for the agency, and that is the only consideration.
- B. Each additional step adds time, paperwork, and decision load that people facing scarcity may struggle to manage, leading to lower take-up.
- C. Fewer steps make fraud easier to detect because applicants have less opportunity to hide information.
- D. Simplified applications are required by law regardless of the population served.
Q3. Which program design feature best reflects an understanding that scarcity affects people's attention and timing?
- A. Requiring applicants to visit an office during standard business hours only.
- B. Sending reminders and offering automatic enrollment so people do not have to remember deadlines on their own.
- C. Publishing eligibility rules in a long policy manual available on request.
- D. Requiring applicants to resubmit documents each month without notification.
Q4. What is a 'benefits cliff' and why does it matter for program design?
- A. A sudden rise in benefits that encourages people to overspend, so programs should phase benefits in gradually.
- B. A point where a small increase in income causes a large loss of benefits, which can discourage earning more; designers can use phase-outs to soften it.
- C. A deadline after which applicants permanently lose eligibility, which should always be avoided.
- D. A period of economic recession that reduces the value of cash transfers.
Q5. Why might a program that gives cash in a lump sum produce different outcomes than the same total amount paid in regular installments?
- A. Lump sums are always less effective because recipients cannot plan how to use them.
- B. Lump sums can help people address large one-time needs or pay down debt, while installments can smooth ongoing consumption; the best design depends on the goal and the recipient's situation.
- C. Installments are always preferred because they prevent any spending on non-essential items.
- D. The timing of payments has no effect on how recipients use the money.