Financial scarcity increases discounting of gains and losses: Experimental evidence from a household task

Leon P. Hilbert, Marret K. Noordewier and Wilco W. van Dijk

Journal of Economic Psychology, 2022, vol. 92, issue C

Abstract: People experience financial scarcity when they have insufficient financial resources to meet demands, and this experience can affect decision-making in various ways. One proposed consequence of financial scarcity is increased temporal discounting, which is a tendency to value immediate outcomes more strongly than delayed outcomes. To test whether financial scarcity indeed increases temporal discounting, we developed the Household Task—an experimental paradigm during which participants have to manage the finances of a household. In a pilot, we found that manipulating participants’ financial situation in the Household Task (debts vs. savings and control) induced an experience of financial scarcity. Next, Experiments 1 and 2 confirmed that this experience increased temporal discounting of gains and losses. In Experiments 3 and 4, we tested whether experienced scarcity also increases discounting when financial resources were equal between conditions. However, in these experiments, there was no evidence of such an effect. In Experiment 5, we found that discounting increased when available financial resources were constant while expectations about future financial problems might have differed between conditions. In sum, the current research suggests that when experiencing scarcity, discounting increases as a response to a current or anticipated future shortcoming of available financial resources. Yet, there was no evidence suggesting that discounting increases when a scarcity mindset is induced in isolation.

Keywords: Financial scarcity; Temporal discounting; Poverty; Debts; Decision-making (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:92:y:2022:i:c:s0167487022000599

DOI: 10.1016/j.joep.2022.102546

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