We Spend, With Reason Or Heart?
According to a study in the journal Psychological Science, people tend to be financially irrational when it comes to choosing how we use resources like money and time, but scarcity can make us more economically rational decision makers.
Research has shown that humans make financially irrational decisions all the time. This is influenced by contextual factors that are not related to the utility or pleasure that we are going to derive from a good or a service.
The study gives a clear example: we can doubt whether to buy a sandwich at 4 euros from a street vendor, for example, but we do not hesitate to buy and pay 7 euros for the same, in a football match. The quality of the sandwich is roughly the same in both settings, but the context is not, and that makes all the difference.
Psychological scientist Anuj Shah of the University of Chicago and his colleagues Eldar Shafir of Princeton University and Sendhil Mullainathan of Harvard University wondered if these irrational tendencies could disappear if people found themselves in short supply. .
“When money is limited, the utility bill and rent payment are at the top of one’s mind, ” the researchers write. After all, paying for one thing means we can’t pay for anything else.
“Someone, contemplating the purchase of a beer, compares the beer with other budget demands, like the food or the bus. And these compensations do not depend on the place where the beer is bought ”, explain the researchers.
Shah and her colleagues hypothesized that people experiencing a scarcity mindset would be more sensitive to tradeoffs and could therefore assess goods in a more stable and consistent way than people who are not faced with scarcity.
Results from three different studies, with more than 2,700 participants, showed that variation in scarcity – in this case, based on annual income – was associated with differences in the way a product was valued.
Specifically, high-income participants were willing to pay more for a beer in a “fancy hotel complex” than for the same beer in a “run-down little grocery store,” thus being much more context sensitive. .
Other studies showed that high-income participants were more willing to travel to get a discount if it was proportionally higher. However, low-income participants were less sensitive to the proportional size of the discount.
Additional data indicates that scarcity also influences the decisions we make regarding non-money resources, especially food and time. These findings suggest that a scarcity condition disposes people to think more consistently about the value of the resource in question, regardless of other contextual factors.
“Instead of looking at randomly changing external factors, people experiencing shortages look at internally generated standards that provide a more stable framework , “ the researchers conclude.
According to the researchers, these findings have direct implications for policy interventions aimed at changing behaviors.
“Politicians often use circumstances and subtle contextual shifts to encourage behavior in a number of areas, from energy to voting. But recent research highlights the limits of these kinds of interventions, ” said Shah and her colleagues.
In other words, interventions cannot make a difference in behavior change if people focus more immediately on the tradeoffs they will have to make.
” In lean conditions, pressing needs are the ones that get attention,” the researchers write.
