The poor live with huge amounts of risk. They live like hedge-fund managers. But no hedge-fund manager is liable for 100% of his losses, unlike almost every small business owner and small farmer.
The relationship betwwen income today and future income is S-shaped, the effect on the poor of a bad break may actually be much worse than temporary unhappiness. Facing risk makes us worry and worrying makes us stressed and depressed. Sympotoms of depression are much more prevalent among the poor. Being stressed makes it harder to focus, which in turn may make us less productive. In particular, there is a strong association between poverty and the level of cortisol produced by the body, an indicator of stress. The stress-induced release of cortisol affects brain areas such as the prefrontal cortex, the amygdala, and the hippocampus, which are important in cognitive functioning; in particular the prefrontal cortex is important in suppression of impulsive responses.
Wages go down. Holding multiple plots in different parts of the village, rather than one single plot, also provides some risk diversification. Migration. Conservative in the way they manage their business. Having multiple occupations, as many poor people do, is also inefficient.
Helping each other. Moral hazard.
Microfinance helps but there are no places in which they can place money because it is too expansive for someone who does not invest much. Micro credit alone is no real help. Governments have spoiled the insurance market