The extreme poor in Bangladesh suffer from a particularly severe form of multidimensional poverty. Despite opportunities for investment – which could ensure future subsistence and graduation from poverty – made available by things like microfinance, the extreme poor continue to under-invest in long-term income-generating activities, instead prioritising the satisfaction of immediate needs. While the evolving debate on multidimensional poverty has helped to unpack the structural causes behind these decisions, very little literature has sought to understand the decision process itself.
In this paper, we argue that low investment and the prioritisation of the present is due to the psychological context of life in extreme poverty, which frustrates ambitions and causes the future to be heavily discounted. This psychological impact of extreme poverty, which results in seemingly irrational decision-making, could be seen as an overarching and under-emphasised dimension of poverty itself.
Using a case study of a successful conditional cash transfer project in Bangladesh, we propose that this psychological context must be addressed in order to enable behavioural change and achieve lasting impact. Our findings add evidence to the ongoing debate on needs, investment, and irrational preferences, and suggest that providing households with demand-driven cash transfers can enable the extreme poor to respond to multidimensional poverty on their own terms. Much as motivational and psychological theories have suggested, these demand-driven CCTs can reduce the typically high discount rates of the extreme poor by satisfying priority needs first, making investment for the future more likely.
Maclay, C.; Marsden, H. Short-term needs and long-term aspirations of the extreme poor: Irrational behaviour, agency and cash transfers in Bangladesh. Shiree Working Paper No. 7. Shiree, Dhaka, Bangladesh (2011) 38 pp.