Self-fulfilling prophecies - expectations, psychological distress, and social mobility in Colombia

Abstract

People living in poverty often behave in ways that reinforce their poverty. Evidence from psychology and behavioral economics suggests that psychological distress, caused by poverty and adversities, induces such behaviors. Particularly, stressed or depressed individuals may lack the capacity to expect a better future. Given this, they could be adjusting their economic behavior fulfilling, eventually, their own prophecies of stagnant or downward mobility. In order to test this hypothesis, we use novel psychological and socioeconomic information of 286 subjects in Colombia provided by (i) a psychometric scale, (ii) an instrument to elicit expectations o/ social mobility, and (iii) a longitudinal survey to estimate probabilistic models. Our results suggest that individuals with pessimistic prospects of upward mobility were 15 percentage points less likely to improve their socioeconomic situation between 2010 and 2013 than optimistic individuals. Part of the effect was driven by psychological distress