Poor decisions: How does poverty affect our willingness to take risks?

Embargoed until: Publicly released: 2025-02-05 11:01

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International researchers have found that people living in poverty can both take more risks because they have little to lose, and take fewer risks because they can't afford to lose the little they have. The researchers looked into the lives of 472 people over 12 months and found poverty is associated with both risk avoidance and risk-taking. They say one explanation for these conflicting results could be that people try and maintain a minimum level of resources for basic needs. If they are just slightly above this level, they are more likely to avoid losing what they have, whereas if they are below this level, they may take more risks to try and escape poverty - something the authors call a 'desperation threshold'.

Media release

From: The Royal Society

Poverty is associated with both risk avoidance and risk taking: empirical evidence for the desperation threshold model from the UK and France

Does poverty make people more or less likely to take risks? Research suggests two opposing views: either poor people avoid risks because they can't afford losses, or they take more risks because they have little to lose. This study proposes a new model: people try to maintain a minimum level of resources for basic needs. When slightly above this level, they avoid risks to protect what they have. When below it, they take risks to try to escape poverty. Studying 472 adults in France and the UK over 12 months, we found that risk-taking followed a V-shaped pattern of their subjective resources, but not objective resources.

Poverty and risk taking – Does poverty make people more or less likely to take risks? Nearly 500 adults in France and the UK were given a series of hypothetical gambles to assess risk taking against objective income, and subjective self-assessment of resources. Risk-taking decreased with subjective resources, but increased when resources got too low. This ‘desperation threshold’ was not seen with objective resource measures and this has implications for welfare systems, said the authors

Journal/
conference: Proceedings of the Royal Society B: Biological Sciences

Research:Paper

Organisation/s: Max Planck Institute for the Study of Crime, Security and Law, Freiburg im Breisgau, Germany

Funder: BdC’s contributions have been supported by the Agence Nationale de la Recherche (ANR-23-CE28-0005-01). WEF’s contributions have been supported by the Dutch Research Council (V1.Vidi.195.130) and the James S. McDonnell Foundation (https://doi.org/10.37717/220020502). The Changing Cost of Living Study was funded by the French Agence Nationale de la Recherche (ANR-21-CE28-0009); the NIHR (Application Development Award: Universal Basic Income. Grant number: NIHR154451. Research Registry number: researchregistry8567); the University of York Cost of Living Re search Group; and the UK Prevention Research Partnership (MR/S037527/1) collaboration, ActEarly. UK Prevention Research Partnership is funded by the British Heart Foundation, Cancer Research UK, Chief Scientist Office of the Scottish Government Health and Social Care Directorates, Engineering and Physical Sciences Research Council, Economic and So cial Research Council, Health and Social Care Research and Development Division (Welsh Government), Medical Research Council, National Institute for Health Research, Natural Environment Research Council, Public Health Agency (Northern Ireland), The Health Foundation and Wellcome.

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