FIN- Topic 1: POVERTY ELEC 2247 BEHAVIORAL FINANCE
Student Name: Terso P. Gregorio Jr.
Chapter Title: Chapter 2 – A General View of Poverty in Turkey as an Issue for Social Work in the Light
of Behavioral Finance and Game Theory
CHAPTER SUMMARY NOTES
Topic 1: POVERTY
 it can be described as a
state of deprivation
wherein the basic needs
necessary for survival are
not met.
Sub-Topic 1: Causes of Poverty
 Personal Characteristics
 Structural Factors
Sub-Topic 2: The Culture of
Poverty
 Basic Characteristics of the
Culture of Poverty
Topic 2: POVERTY IN TURKEY
 Income Distribution
 The dimensions of poverty
in Turkey
 Food Poverty Line
 Multidimensional Poverty
Date: January 8, 2022
 Poverty is present even in developed countries.
 ABSOLUTE POVERTY LINE THEORY
o “not possessing sufficient resources to meet one’s needs” or very
similarly, “remaining below the absolute minimum welfare level”
and “not being able to meet the need for goods and services
necessary in order to stay alive”
 Personal characteristics, such as skills and abilities, concepts of discipline
and responsibility, or levels of frugality, they can also depend on structural
factors outside of the individual’s own direct control
 Overpopulation, the unfair distribution of economic resources, inability to
afford high standards of living, lack of education and employment
possibilities, rapid destruction of the environment, certain economic and
demographic trends etc.
 Lewis claimed that the culture of poverty was “a way of life handed on
from generation to generation along family lines.”
 An unhealthy relationship with social institutions
 Not involved in politics
 Live in unhealthy dwellings in slum neighborhoods
 Families tend to be large
 High incidence of feelings of exclusion from society, feelings of
helplessness, feelings of inferiority, weak ego structure, no impulse
control, living for today and not really thinking about tomorrow,
resignation and fatalism, and widespread belief in male superiority
 For 2004-2005, the top 20% of the population received close to half of the
total income in the country while the bottom 20% received only 6%
 According to the United Nations Development Programme (UNDP) Human
Development Index, considered as one of the indicators of a country’s
poverty, while Turkey was 69th out of 174 countries in 1995, it had fallen
to 86th in 1999 and 84th in 2005
 623 000 people living below the food poverty line in Turkey
 Approximately 20% of the population eked out a living below the food and
non-food poverty lines
 When we take a poverty line of $2.15 per person per day, the number of
poor rises to over one million

Sub-Topic 1: Evolution of Poverty
in Turkey
 Reasons for the evolution
Topic 3: BEHAVIORAL FINANCE
 Behavioral Finance is the
study of the effects of
psychology on investors
and financial markets.
 Traditional Finance
Theories
Sub-Topic 1: Cognitive &
Emotional Tendencies
 Behavioral Finance is
structured around these
tendencies which prevent
individuals from behaving
rationally.
Sub-Topic 2: Standard Thinking vs
Behavioral Research
 Standard Thinking
 Behavioral Research
Topic 4: GAME THEORY
 Game Theory is the study
of how people interact.
 There are multiple players.
 The game can be finite or
infinite.
 While at $4.30, the figure specified for the group of countries that includes
Turkey, it is approximately twelve million
 6.6% of the population lives in multidimensional poverty
 7.7% (by the MPI ‘reckoning’) are at risk of multidimensional poverty
 As national income increases, the income gap between the middle and
upper classes also increase. It made poverty visible in the city
 Migration of citizens from rural to urban areas
 The poor become vulnerable
 As the result of the evolution in poverty, poor people lack the protective
mechanisms that they used to have within the traditional social order
 Behavioral finance was born as a discipline that points to human
psychology as a potential source of the steps in the decision-making
process and of market anomalies that cannot be explained by traditional
finance theories
 Investors (and the market) are rational.
 Investors care about utilitarian characteristics.
 Investors have perfect self-control.
 Investors are not confused by cognitive information errors or information
processing errors.
 However, this is not always the case.
 Cognitive tendencies are formed as a result of investors seeking to create
shortcuts in their decision-making processes
 Emotional tendencies are basically guided by desires to avoid loss and
regret.
 People:
o are loss averse.
o often fail to ignore sunk costs.
o often fail to consider opportunity costs.
o have trouble predicting their future moods or tastes.
o have trouble learning from past experience.
 Standard Thinking. Driven by normative assumptions. Implemented based
on people's preferences and motivations.
 Behavioral research. Highly consequential behaviors often are triggered by
what are deemed to be minor causes
 Assumptions
o People are rational.
o Maximize self-interest.
 Game-theoretic models allow economists to study the implications of
rationality, self-interest and equilibrium, both in market interactions that
are modeled as games
  The objective is simple:
WIN.
Topic 5: POVERTY IN THE CONTEXT
OF BEHAVIORAL FINANCE AND
GAME THEORY
 Behavioral finance explains
that a negative situation
such as poverty can be
explained as incorrect on
the part of the poor.
Sub-Topic 1: Solving poverty will
not be achieved through
individual endeavors alone.
 It needs an economic and
social crusade and
multiple-intervention
system should be used.
o EDUCATION
o COUNSELING
o RESOURCE
MANAGEMENT
Sub-Topic 2: An approach that
limit the mathematical content of
game theory
 Introduced by Bernard
o such as where small numbers, hidden information, hidden actions
or incomplete contracts are present
 In nonmarket interactions
o such as between a regulator and a firm, a boss and a worker, and
so on
 Zhao and Zhang state that game theory can be used in interactions where
both sides select profit-maximizing strategies.
 Beaulier and Caplan, in their article “Behavioral economics and perverse
effects of the welfare state, have interpreted behavioral economics as a
theory showing that we should not help the poor for their own good”
 In a behavioral perspective, it is easy to interpret the perverse effect of
incentivizing the poor monetarily.
 Social phenomena are definitely related to the behaviors of individuals,
but they are not the sum total of these behaviors because if that were so,
we can solve poverty in the entire globe by just encouraging others to
make a correct action and avoid mistakes.
 Many households seek advice from financial planners, but some
households make decisions that deviate with this advice.
 maintain the assumption that actual and ideal behavior coincide, but to
consider nonstandard behavioral models of preferences that incorporate
phenomena such as loss aversion and mental accounting:
o Loss aversion is the observation that human beings experience
losses asymmetrically more severely than equivalent gains.
o Mental accounting refers to the different values a person places on
the same amount of money, based on subjective criteria, often
with detrimental results. Prone to irrational decision-making in
their spending and investment behavior.
 Behavioral economics approaches are important in the development of
advice designed to help the poor
 The poor, as a rule, do not have savings to invest;
o they can only be steered towards being conscious consumers if
they are enabled to make effective use of their earnings in line
with the suggestions of behavioral economics.
 Bernard, has introduced an approach that does limit the mathematical
content of game theory, thus enabling it to be widely used
 It is of great importance, Bernard stresses, that sociologists learn to
translate sociological problems into games.
 Bernard’s treatment is nonmathematical, and she reassures the reader
that one can use game theory, just like statistics, without a full
understanding of the underlying theorems.
 Game theory is mainly of help for making predictions.

Sub-Topic 3: Interviews carried out
in the study Cases of Poverty in
Turkey
 Erdoğan, 2011
Sub-Topic 4: Household Budget
Survey Consumption Expenditures
2009
 at 28.2%, housing and rent
constitutes the biggest
slice of household
consumer spending
Topic 6: CONCLUSION
 Game theory recommends
that each and every
situation be approached
like a game and claims that
it shows the most sensible
strategy in such games
 The Long-term Causes of Poverty in Turkey
o Education Household
o Make-up External Immigration
o Refugees
 A great number of the poor said that they expected the government to
help them out of their current situation.
 This makes it clear that in Turkey, contrary to Lewis’ findings, the poor do
take an interest in politics, even if this does not amount to an active role
 In Turkey, the current ruling party makes effective use in its political
propaganda of the work that it has done to help the poor.
 In the context of game theory, in such a relationship, the gain to be had by
a political party is the votes that it will receive from the poor, while the
poor expect their lives to get easier thanks to help that they will receive.
The ruling party widely distributes food and fuel aid to the poor.
 Thus, one of the poor player’s constant needs is met as and when it arises.
Should the ruling party lose office, there is a high possibility that this aid
will be stopped.
 In the current state of the game, voting for the ruling party is one
profitable strategy for the poor.
 Becoming a homeowner is a major achievement for a poor person and,
once acquired, his or her home remains his or hers forever, independently
of the existence of a helping hand.
 Poor people who do not own their own homes indicated their wish to do
so shows that they thought it more profitable to be a homeowner than to
have their other needs met.
 If the poor act together to ensure that their joint needs, such as housing,
are met, it will allow them to take the initiative against a strong player in
future games.
 In moves falling under the scope of finance, behavioral finance claims to
prove that players do not always behave rationally.
 When both theories are taken together, it is also possible to assert that
when the correct behavior is clear, negative results stem from people not
behaving rationally.
 Game theory and behavioral finance must not acquire the role of absolving
the system, especially not with regard to poverty.
 The poor should definitely be helped to make their living conditions easier
and alongside this, strategies in the struggle against poverty should also be
formulated in the light of theories such as game theory or behavioral
finance
 The poor have received a much smaller share of this joint resource than
the rich have. As the natural result of this, they consume less of the
 planet.
 It is also possible to think that the rich are indebted to the poor because
they consume more natural resources, which are the joint property of
humanity