The Land of Missed Opportunities: Dissecting Consumption Choices of the Rural Poor

Poverty is often associated with a wide range of counterproductive behaviors- saving too little, overborrowing, low take-up rates of welfare programs. Additionally, the poor are often seen spending a ludicrous amount of money on tobacco, alcohol, festivals, marriages, etc. Bennett’s law, given by Merrill K. Bennett in his 1941 paper titled ‘International Contrasts in Food Consumption’, states that a rise in income should translate into consumption of nutrient-dense foods from cheap, caloric starchy staple foods. However, when poor households in India receive a rupee in additional revenue, food expenditures increase by about 63-67 percent only. Of this figure, only half goes into increasing calories while the remaining is spent on growing taste- more oil, more sugary beverages, more meat. The figures below offer a precise picture of the change in consumption patterns of the poor with a marginal increase in income. Note that India falls somewhere in the middle of the X-axis, between Congo & the United States. 

It is evident from the above two figures that an increase in income is translated into significant increases in the consumption of beverages, tobacco, and other foods (processed food & street vendors). The poor diversify into these other foods before fully satisfying their calorie requirements. In reality, the poor, as I infer from these figures, are maximizing utility instead of calories. The catch here is that if utility maximization were taking place in the neo-classical sense of economics, we would see the poor consuming better calories that would, in the long term, help them escape nutrition-based poverty traps. However, the per capita calorie consumption in India has been consistently declining, despite rising incomes. Why won’t the poor spend more on nutritious food, which, paternalistically speaking, will lead to higher long-term utilities? 

What if there are priorities, other than food, that might take precedence over calorie expansion? When the poor person is seen spending an additional rupee on recreational items instead of nutritious food, government programs focusing primarily on food might have to reimagine how they think about basic, everyday needs. In this article, I review various strands of literature focusing on behavioral insights into how the poor make daily consumption decisions as their income rises beyond subsistence. 

Looking Beyond Food: Basic Needs  

A plausible & often-cited explanation is that the poor don’t invest in healthy food simply because it is expensive. However, the cheapest diet sufficient to give 2400 calories would only cost about 21 cents a day, as Banerjee & Duflo (2011) calculated. Interestingly, this diet involves the consumption of bananas & eggs only. In the age of rapid urbanization & food industry marketing, is it possible for the poor to not fall prey to the need for variation? Can they, just by virtue of being poor, act as sophisticated economists & restrict their diets to fruits & vegetables as their incomes increase? The need for variation in food dates back to George Orwell, who famously said: 

The basis of their diet, therefore, is white bread and margarine, corned beef, sugared tea and potatoes — an appalling diet. Would it not be better if they spent more money on wholesome things like oranges and wholemeal bread or if they even, like the writer of the letter to the New Statesman, saved on fuel and ate their carrots raw? Yes, it would, but the point is that no ordinary human being is ever going to do such a thing. The ordinary human being would sooner starve than live on brown bread and raw carrots. And the peculiar evil is this, that the less money you have, the less inclined you feel to spend it on wholesome food. A millionaire may enjoy breakfasting off orange juice and Ryvita biscuits; an unemployed man doesn’t.… When you are unemployed … you don’t want to eat dull wholesome food. You want something a little bit “tasty.” There is always some cheaply pleasant thing to tempt you.’

Banerjee & Duflo (2011) reported that a typical poor household in India spends almost 30 percent of their income on alcohol & festivals. Thus, instead of having a restricted choice set, it seems as if the poor see themselves as having a significant amount of choice & consciously choose not to spend it on more nutritious food. A behavioral explanation to this consumption pattern was given by Bartos et al. (2018), who experimented with low-income Ugandan farmers to investigate the role of poverty on ‘time discounting.’ They found that feelings of deprivation (through minor/severe financial shocks) increased the farmer’s chances of choosing entertainment & delay work effort, possibly via self-control & cognitive load channels. 

The above discussion is not implying that food is not a priority. Banerjee (2015) provides evidence for the possibility that there are other necessities such as cell phones that ‘take precedence over everything but the calories required to survive.’ Once people have their needs, they move relatively quickly to higher food spending (Banerjee, 2015). In understanding this hypothesis better, Sen’s capability approach that moves beyond food entitlements is quite helpful (1979, 1985). 

The poor require more than food to survive a life that is otherwise filled with an enormous amount of hardship. Keeping this in mind, I further explore the behavioral drivers behind the demand for non-food items & expensive calories in the face of energy deprivation. 

Conspicuous Consumption & the Relative Depravity Hypothesis

The Relative Depravity theory, given by Bellet & Sihra (2018), hypothesizes that social inclusion significantly increases the cost for poor households, especially in areas where inequality prevails as the consumption standard of conspicuous goods (television, cellphones, etc.) is higher. Relative Deprivation, as defined by the authors, refers to the expenditure gap between rich & poor. Veblen (1899) first introduced the concept of conspicuous consumption arising from the need to feel socially ept & included. Conspicuous consumption here refers to the consumption of aspirational goods that might be considered necessary to live in a society. They theorised that the poor need to “live up to the accepted canons of decency” driven by “the usages of the highest social and pecuniary class.” To put it into simpler terms, when you find yourself purchasing the newest iPhone model every year, you might be conspicuously consuming. Higher is the felt relative deprivation, greater would be the minimum required spending on conspicuous goods. 

Bellet & Sihra (2018) use a structural estimation of the demand system on BPL households in India find that relative deprivation increases the required consumption level of expensive calories (e.g., dairy or packaged products) & non-caloric goods (e.g., clothing or fuel). Following this result, we can expect the demand for conspicuous goods to rise when relative deprivation increases. An important finding of their paper is as follows- a poor household living in an unequal region is much more likely to remain malnourished than a similar household in a more equal area. Another point of evidence for this hypothesis was offered by Fafchamps and Shilpi (2005). They asked people in Nepal to assess whether their consumption levels, food, clothing, health care, and schooling were adequate. The answers to these questions were strongly negatively related to the average consumption of the other people living in the same village. 

Food for Thought: The Scarcity Theory

Mullainathan & Shafir (2013) presented a new theory about the behavior of the poor- the Scarcity Theory. One proposition of this theory relevant to our discussion is that poverty leads to an attentional focus on scarcity-related demands & neglects other issues. Relating this to our earlier discussion, as relative deprivation increases, the scarcity of non-food items & expensive calories increases as well. As a result, the poor person focuses on these demands much more than other issues such as nutrition. 

The poor then find themselves in a poverty cycle, in which poverty itself causes poverty-reinforcing behaviors. Zhao & Tomm (2017) provided evidence of this proposition, who used eye-tracking to measure visual attention in their restaurant menu experiment. They found that participants under financial constraints spent more time on scarcity-related information (i.e., prices) and less time on other useful information (e.g., calorie information) than their wealthier counterparts. Another interesting finding of this study was that participants under scarcity were also more likely to neglect beneficial details, which could have alleviated their condition of scarcity (e.g., discounts given in the menu cards). These results suggest that scarcity impairs proper information detection. It must be noted that the participants here did try to maximize perceived utility & choose the most optimal option by paying attention to information salient to them (prices). 

Making Nutrition Salient: An Information Asymmetry Perspective 

Keeping the above discussion in mind, is it possible that providing salient details on the nutritional benefits of food to the rural poor will lead them to better decision-making? Living on scarce resources every day must also mean limited access to helpful information. Policy interventions focusing on providing region-specific & budget-friendly diets and their benefits can eliminate the information barrier to nutrition. Behavioral research done by Frederick et al. (2009) showed that people often neglect opportunity costs when making consumption decisions in real life. Plantinga et al. (2017) find that both poor & rich, when reminded of the opportunity costs of consumption choices, feel more inclined towards making better choices. However, exactly how much impact can the correct information have on options remains largely unexplored. 

To enforce the right food policies, it is essential to uncover all the precise factors that drive consumption choices in rural India. On the one hand, the Basic Needs theory implies that the poor place considerable importance on goods beyond food. A natural shift by the poor towards quality & nutrition, post the fulfillment of other necessities, will then require proper identification of the real-life priorities of a typical poor household. The next step would be feasibility- is providing a spectrum of subsidized goods & services to increase disposable incomes fiscally feasible? If not, do we instead focus on policies that effectively trickle down India’s rapid economic growth & income gains to the bottom half of the population? 

An essential addition to the basic needs theory is the Relative Deprivation argument that we discussed. Understanding how the distribution of income in society can determine the definition of basic needs may help redirect the discussion towards inequality rather than the presumed irrationality of the poor. Lastly, we discussed the scarcity theory, which attributes the difficult everyday life of the poor as the reason behind their reduced cognitive bandwidth, making them less capable of making optimal decisions. With the increasing malnutrition figures in India, food policy, all in all, might require a drastic shift from risk-based welfare & minimal survival to fostering a lifestyle that the poor can value & afford.

Ananya Chaba is a student at Ashoka University, currently pursuing research in Behavioural Economics as an ASP student. Her interest lies in Public Policy & Development Economics through a predominantly behavioral lens.

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