Why Do We Make Stupid Decisions on Money Work? You might be surprised to learn that there are several reasons we make bad decisions. But by understanding the process of decision-making, we can make better choices. In the following, we'll look at how we make mistakes and learn from them. The psychology of poverty can have a huge impact on how we make decisions. In this case, the psychology of poverty often sways us away from long-term plans. We make a decision based on the short-term need instead because it seems too impossible to get the long-term gain. Although the decision may seem irrational to others, in fact, it is actually the most logical response to chaos and uncertain outcomes.
The study was published in Science magazine. The authors concluded that poverty negatively impacts people's decision-making skills and reduces their IQ by 13 points. This finding has important implications for policy makers, as policies that withhold cash from the poor may exacerbate this cognitive burden. Instead of punishing poor people for making bad decisions, we should give them cash. This will help them think better about their financial situations and make better decisions.
The psychology of scarcity is one of the most profound reasons why we make bad decisions. According to Harvard economist Sendhil Mullainathan and Princeton psychology professor Eldar Shafir, people who experience scarcity tend to make bad decisions. This lack of means requires a lot of mental energy, and people who lack resources are more likely to make bad decisions. This is because a person's limited resources makes them impulsive and distracted.