Video: Attention and decision-making under scarcity

Jiaying Zhao: Hello everyone. Thanks for coming to this session. I flew in from Vancouver last night and so I suffer from sleep scarcity so I may not be coherent. I’ll try to stay on task. This session is about scarcity and decision making.

In the past ten years we really have seen a shift from scarcity, being a lack of physical resources such as money and time to a lack of mental resources such as your working memory and attention. This shift, this conceptual shift in scarcity framework is demonstrated here. We argue that the condition of scarcity, which is a lack of resources, directly impairs cognitive function and impaired cognitive function leads to bad decisions and choices that further perpetuate scarcity.

This is a vicious cycle that we hope to demonstrate. One of our early evidence for this framework is this study that we did in a shopping mall in New Jersey when we presented rich and poor participants financial problems. These financial problems can be either hard which means they involve a large cost. It could be $1,000 or $2,000 or these problems can be easy. These problems involve $100 to $500.

When people are thinking about these problems we give them some cognitive quizzes. So the Raven’s matrices on the left is a test for fluid intelligence. It measures your IQ. On the right hand side is cognitive control, a measure for executive function of your mind. What we found was first of all the rich were not influenced by whether the problem was hard or easy or whether the cost was large or small.

Importantly for the poor when they’re thinking about a large cost in mind their cognitive function is lower. That means they show lower IQ on Raven’s matrices and lower executive function on the cognitive tests. This impairment is equivalent to a 10 to 13 points drop in IQ. A 10 to 13 point drop in IQ is equivalent to a loss of one night’s sleep or aging 15 years from 45 to 60 years old.

This is a large consequence on the mind by virtue of being poor. We also conducted the same study within the same person. This is a study done in India with sugar cane farmers. We gave the same Raven’s matrices and cognitive control test to these farmers before harvest and after harvest. Before harvest these farmers are really poor. They’re struggling to make ends meet.

After harvest they’re rich. They just get their entire year’s income at the harvest. What we found on Raven’s matrices on the Stroop task people performed worse before harvest when they’re poor but they performed significantly better after harvest when they are richer. This variation is even seen within the same person over just a period of a few months.

Generalizing from money scarcity to time scarcity a lot of us are time poor if you’re not money poor. For low income individuals they’re both time poor and money poor. This is a study I did in UBC where we demonstrated a consistent decline in IQ as students approached the final exams. This is November each week to December when final exams started.

We replicated these results in multiple years and multiple semesters and the decline over one month before the final exam was about 10 IQ points. That’s also ironic that the students are suffering cognitively before the final exams. We’ve demonstrated these casual impairments of scarcity on cognitive function or mental function.

How does scarcity tax your mind? We offered a hypothesis which is we pay attention very differently to the environment when you’re poor. This is an experiment we did online with a large sample with the US public. We presented a menu. On the left hand side you have food dishes which food you want to do. In the middle column is the price, how much does each dish cost.

On the right hand side is the calories. Importantly on the bottom of the menu, I don’t know if you can see this, is a discount. You’re eligible for an 18% discount. What we did is first we randomly assigned people to rich conditions where each individual had $100 to order from. You had to order a meal. The rich participants have $100 to order.

The poor participants randomly assigned have only $20 to order from. As they’re making that decision of what they can order from this menu we eye track them. We track their attention as they view this menu. This is the (unintelligible) of eye gaze from our participants. As you see there are distinct differences between how the rich pay attention and how the poor pay attention.

The first difference is that the rich looked at the dishes more. They can actually think which dish do I want? Which one do I like? But the poor look at the prices more, they actually focus their attention primarily on the middle column thinking about which dish can I afford. The rich also look at calories more. They can also consider how many calories should I intake.

Most ironically the rich look at the discount more and more of the rich participants ask for the discount than the poor. Now this is very ironic because the poor would really benefit from this discount but in contrast they didn’t even look at – they didn’t even notice the discount or use it. This neglect of this helpful tip is the vicious cycle. It perpetuates scarcity.

We’ve generalized the same finding with time scarcity so people have to solve some puzzles in the middle of the screen, again being eye tracked and occasionally we show some tip on the bottom of the screen that says you can skip this trial to save some time. This trial is useless. It doesn’t give you any points. Please skip this trial to save time.

What we found was again for the rich participants who have more time to spend on this task, they notice the cue and they skipped more trials and they save more time whereas the poor participants who only have ten minutes to complete the task, they didn’t even see the cue and they ended up wasting more time.

The conclusion is that scarcity biased the attention to either the price or the time information, whichever information is relevant to you at this moment and at the same time induces the neglect of a savings opportunity. That’s the vicious cycle that we tried to illustrate, is impaired cognitive function, this attentional trade-off under scarcity can perpetuate the condition of scarcity itself.

What’s the implication for this model? First it raises two points of intervention. One point is alleviate scarcity so we can remove scarcity or at least try to use cash transfer programs or universal basic income programs to alleviate the condition of scarcity. In fact a student of mine is presenting a poster right there where we’re giving $8,000 in one shot for free to homeless individuals in Vancouver and we have some really promising results over there.

That’s on one hand alleviating scarcity could be one intervention. On the other hand we should alleviate the cognitive burdens of the poor. How do we do that? We can design programs and services in a much easier way for the poor to enroll or participate including setting defaults, setting up automated programs, simplifying procedures so that these are several nudging interventions that we can do that could be particularly beneficial for the poor.

Okay, so this is my brief intro into scarcity and decision making and today we have an excellent panel of three speakers. Let’s start with Sam Hirshman. Sam is a fourth year PhD student in behavioural science at the University of Chicago Booth School of Business. He is working with Abby Sussman and he will be talking about how people manage debt payment over multiple credit cards and what neglect such as interest rate can occur as a result. Over to you Sam.

(Applause)