decision-making under conditions of poverty
TRANSCRIPT
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Eldar Shafir Princeton University
Sendhil Mullainathan Harvard University
Christopher Bryan Crystal Hall Anandi Mani Anuj Shah
On the Psychology of Scarcity
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Two Dominant Views of Behavior under Poverty Rational Choice view
– Consistency, Willpower, Well-defined preferences,.. – Behavior: calculated adaptation to prevailing circumstances
Pathology view – Psychological pathologies specific to the poor – Impatient, no planning, confused – Behaviors endemic to “culture of poverty”
An alternative:
Us! Neither rational nor pathological; just plain human…
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Conditions of scarcity (in money, time…) produce their own psychology. This psychology, in contexts of scarcity, produces characteristic behaviors.
The psychology of scarcity…
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The Packing Problem: A Suitcase metaphor
Larger suitcase: - pack everything important w. room to spare - easy to leave slack, in case something comes up
Smaller suitcase: - pack the very essentials - need to choose among important items that don’t fit - hard to maintain any slack
• Slack makes it easier to pack; Complexity higher when suitcase tight – Slack reduces cognitive cost: requires less focus, less vigilance
• Bigger suitcase means slack is “cheaper” – What you give up to maintain slack is (marginally) cheaper
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Tradeoffs: % who think about what they would not buy instead…
(India)
(US)
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Taxi fare when you first get in?… (South Station)
0%
10%
20%
30%
40%
Low SES High SES
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Tradeoffs: If I buy this, what do If I do this, what do I not buy instead? I not do instead?
Indulgences: Given what you owe, what are you doing spending?!
Given what you owe, what are you doing here schmoozing?!..
Basic goods turn into “luxuries”
Basic activities turn into “luxuries”
Temptations:
Poor in Money or Time… an empathy bridge
More consequential: When there’s lack of slack, bad tradeoffs, giving into temptation / indulging - all more consequential!...
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Psychology of Scarcity
• Persistent tradeoff thinking • More complicated / demanding packing… • Greater vigilance (attentiveness, knowledge...) • Focus (often highly effective...)
è • Tunneling
• Horizon shortening (“myopia..”)
• Borrowing • Insensitivity to horizon & its costs…
• Distraction • Depletion, Error…
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20 rounds “Rich”: 50 sec / rnd (1000 sec total) “Poor”:15 sec / rnd (300 sec total)
No borrowing vs. High Interest Borrowing
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0
5
10
15
20
25
30
Poor Rich
No Borrow
Borrow1:2
Rounds Completed
0
10
20
30
40
50
60
70
Poor Rich
No Borrow
Borrow1:2
P < .001!
Points Earned
P < .001
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• Debt Traps
• Smoothing consump4on
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1 2 3 4 5 6 7 8 9 10 11 12
Round
Low Slack
High Slack
-0.008
-0.006
-0.004
-0.002
0
0.002
0.004
0.006
0.008
low slack high slack
No Borrow
Borrow1:2
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Overall performance (poor vs rich)
-1 -0.8 -0.6 -0.4 -0.2
0 0.2 0.4 0.6 0.8
Poor Rich
No Borrow
Borrow 1:2
N = 68
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Momentary Focus (poor vs rich)
7
7.3
7.6
7.9
8.2
8.5
First Shot
Second Shot
ln(t
ime
)
Poor
Rich
N = 68
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Scarcity is distracting..
(Calorie) Scarcity Hypothesis: Temp4ng foods monopolize the aCen4on of dieters (more than of non-‐dieters…)
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Search 4mes – for neutral targets -‐-‐ by condi4on and group
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(3 practice trials) Interaction: Significant!
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Financial challenges…
Imagine that your car...requires a..[ hard: $1,500; easy: $150] service… How would you go about making this decision?...
In a NJ mall: Participants think about financial challenges, and complete cognitive tasks…
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press the same side as the heart press the opposite side as the flower
Raven's Progressive Matrices
“Driving test”… “Intelligence test”…
“Measures high-level observation skills, clear thinking ability, and intellectual capacity.”
Measures cognitive control & executive function…
Cognitive control task
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0
0.1
0.2
0.3
0.4
0.5
0.6
Rich Poor
Easy (cheap)
Hard (Expensive)
Raven’s Matrices
!"#$
!"%$
!"&$
!"'$
!"($
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!"*$
!"+$
,$
-./0$ 1223$
4567$8/095:;$
<53=$84>:9?6.@9;$
Cognitive Control
Performance in financial challenge
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Sugar cane farmers in India…
Significantly greater # of errors pre-harvest compared to post-harvest…
(Also heart rate, blood pressure, etc.)
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press the same side as the heart press the opposite side as the flower
Raven's Progressive Matrices Cognitive control task
Affirmation at a Soup Kitchen
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Results
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Affirmation in the context of welfare benefits programs (EITC and local VITA sites) …
Stopped to consider: 44% 58% (ns)
Of those, took the information: 36% 79% p=.03
(Total take up:) 16% 46% p<.01
Neutral Affirmation Condition:
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Irony of Poverty
• Poor must make higher quality decisions – Packing problems are harder under scarcity – Many more temptations under scarcity – Can’t afford mistakes under scarcity
• Poor are in worse position to make high quality decisions – Distracted by other stressors/decisions/conditions – Depleted by challenges/temptations/past failures – Hampered by context/culture/stereotype – Unappreciated! (Both they and their packing problems...)
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Problem Bottleneck Nudges
Inventions
Low Income Workers Less Productive High Turnover
Psychic Tax of Poverty
Financial Stabilizer
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Provide customer service
ideas42 is pilo3ng a package of financial services designed to simplify and stabilize finances for low income employees
Provide emergency buffer
• Low-‐cost credit access • Emergency savings
Give 3mely feedback & automate messaging
• Reminders about important
financial deadlines • Progress tracking for financial
goals and commitments
Pilot design
26
Create budget
Direct deposit into 3 dedicated accounts:
1) Bill payment 2) Discre4onary spending 3) Emergency savings
Set up session with financial representative
1
Automate payments
• Bill payment • Emergency savings
Ongoing interaction
with employee
2
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Thank you!
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