Recent influential literature suggests that poverty by itself reduces cognitive capacity. The authors hypothesise that it is the income variability typically associated with poverty that impedes cognitive functioning of low-income people. To test this hypothesis, they experimentally induced thoughts about finances to a sample of small low-income retailers in Vietnam whose businesses are exposed to different levels of income variability. They found that cognitive performance in financial stressful situations is not affected by absolute poverty as measured by wealth or income. However, cognitive performance in financial stressful situations has an inverted U-shaped relationship with income variability. Being exposed to very low or very high income variability can be detrimental for cognitive capacity. There seems to be an optimal amount of income variability which potentiates the cognitive capacity of the retailers when they face financial stressful situations.
Dalton, P.; Nguyen, N.; Ruschenpohler, J. The Right Amount of Income Variability: Evidence from Small Retailers in Vietnam. (2016) 21 pp.