Sour Grapes: Relative Deprivation, Adaptive Preferences and the Measurement of Poverty

Abstract

One frequently used direct measure of deprivation and poverty is the objective relative deprivation index (O-RDindex), developed by Mack and Lansley (1985). One assumption underlying the O-RDindex is that respondents can distinguish between what that they cannot afford and what they do not want. This assumption contradicts the subjective usage of the concept relative deprivation (S-RD), which suggests a connection between economic circumstances, choice of reference group and consumption preferences.The present analysis supports the S-RD assumptions. People with limited access to economic resources are more likely to say they ‘do not want’ various consumable items. The results indicate a subjective bias that leads to underestimation of the incidence of O-RD among those suffering from the greatest economic hardship. However, it is also concluded that asking people to differentiate between choice and economic constraint improves our measurement of O-RD and decreases the risk that relatively well-off individuals will score high on the O-RDindex due to peculiar prioritising of consumption. Yet it is still the case that the social mechanisms related to S-RD most probably lead to underestimation of O-RD.