Behavioral economics mixes the rationality of economics with the semi-rationality of the human brain. This Harvard Magazine article by Cara Feinberg covers the work of Professor Sendhil Mullainathan, who works on studies of how scarcity affects the mind:
In 2008, Mullainathan joined Eldar Shafir, Tod professor of psychology and public affairs at Princeton, to write a book exploring these questions. Scarcity: Why Having Too Little Means So Much (2013) presented years of findings from the fields of psychology and economics, as well as new empirical research of their own. Based on their analysis of the data, they sought to show that, just as food had possessed the minds of the starving volunteers in Minnesota, scarcity steals mental capacity wherever it occurs—from the hungry, to the lonely, to the time-strapped, to the poor. …
“To put it crudely,” he explains, “poverty—no matter who you are—can make you dumber.”To prove it, they planned to administer Raven’s Progressive Matrices tests (essentially IQ tests that measure skills without requiring experience or expertise) to their subjects. Just before taking the test, subjects were asked to consider a hypothetical scenario:
Imagine you’ve got car trouble and repairs cost $300. Your auto insurance will cover half the cost. You need to decide whether to go ahead and get the car fixed,or take a chance and hope that it lasts for a while longer. How would you make this decision? Financially, would it be easy or hard?
Using self-reported household income, the researchers split the subjects into groups of “rich” and “poor.” When they tallied their scores on the Raven’s Matrices, there was no statistically significant difference in the groups’ performance.
But in a second version of the test, researchers raised the price tag for the repairs to $3,000. Although rich people’s test scores showed no significant difference, the poor people’s scores dropped the equivalent of about 14 IQ points: the difference between the categories of “superior” and “average” intelligence—or more pointedly, from “average” to “borderline deficient.” That’s a greater deficit than subjects in sleep studies typically show after staying awake for 24 hours, Mullainathan and Shafir highlight. “Simply raising monetary concerns for the poor,” they explain, “erodes cognitive performance even more than being seriously sleep deprived.” …
Scientists spend vast resources developing medications, water-purifying technologies, financial products, and social services designed to help people in need, he explains. But getting people to use these technologies also requires understanding the psychology of the people using them. Policymakers, he says, must make this type of research a priority.
Great article. It would seem like good policy to use these findings when building programs to help the poor. But I have to consider this: sometimes these policies implement changes in the way these folks run their lives, and this may be resented. Regardless of the fascination of these findings, their implementation will be difficult simply because most folks like to run their lives their way.
And apparently scarcity is not a particular synonym for poverty – a scarcity of time can also affect you, causing poor time management decisions to be made when the condition becomes chronic.
