Distracted Into Debt

Distracted Into Debt

THE SOURCE: “Some Consequences of Having Too Little” by Anuj K. Shah, Sendhil Mullainathan, and Eldar Shafir, in Science, Nov. 2, 2012.

Read Time:
2m 58sec

 Why do poor people so often waste money and pile up debt? For years, social scientists have blamed environmental factors and personality traits unique to the poor. But Anuj K. Shah, a behavioral scientist at the University of Chicago, Harvard economist Sendhil Mullainathan, and Eldar Shafir, a professor of psychology at Princeton, say something both more innate and more universal is at work.

Call it the tunnel vision of scarcity. When funds are low, all humans—not just the poor—focus much more intently on short-term demands. We put so much cognitive energy into immediate concerns that there is little left for long-term considerations. The same dynamic prevails in other domains: People short of time or hungry for food also have short time horizons.

Shah and colleagues devised a series of clever laboratory experiments to show how the dynamic works. In an Angry Birds–style video game, players could score points by clearing targets with a slingshot. Some players, the “poor,” were given 30 shots (three per level), while others received 150 (15 per level). In each group, some players were given the option of borrowing shots from later rounds in order to avoid having to repeat a level. But they would pay an “interest rate” of 100 percent—one shot.

With just three shots per level at their disposal, the poor faced a great temptation to borrow. Those who were allowed to borrow performed worse in the game than the poor who had to make do with three shots per round. In effect, scarcity caused the poor players with borrowing rights to misjudge, and they overborrowed. (The ability to borrow had no impact on the scores of “rich” players, those given 15 shots per level.)

Remarkably, all of the poor players in the experiment took longer to aim their shots than the rich players did. And that often paid off: The poor players who couldn’t borrow scored more points per shot than their rich counterparts. But trying hard to make every shot count came with a cognitive cost for the poor who were allowed to borrow: The more time they spent aiming their shots, the more shots they borrowed from later rounds.

To make sure these results weren’t a fluke, the authors designed a similar test, based on the television game show Family Feud, making time rather than shots the scarce commodity. The results were essentially the same. In another version of the same game, the researchers gave some players the ability to preview the next round’s question. With more cognitive resources to spare, rich players took advantage of the preview feature to improve their performance. Poor players failed to notice this feature, and their scores did not improve.

Shah and colleagues also found that the cognitive costs of poverty are measurable. In another experiment, based on the game show Wheel of Fortune, the researchers administered a simple cognitive test after the game. With many more guesses to use, the rich players might exhibit more fatigue and record lower scores. But it was the poor players who suffered, scoring lower.

The three researchers don’t think their findings show that poor people are forever condemned to short-term thinking. In the real world, the poor generally do not save much money, but many will for very particular purposes—to a buy a vacuum cleaner, for example. That tendency provides an opportunity to change behavior by getting people to focus on more of their specific future needs and desires.