How scarcity affects decision-making by the poor

SINGAPORE — The poor are seen to make bad decisions when it comes to taking their medication at the correct time, managing finances and disciplining their children, for instance.

But studies have shown that people make bad decisions not because they are poor but because scarcity is distracting and takes people’s minds away from other matters.

And policymakers can make a difference — when they make one part of people’s lives better, improvements may be seen elsewhere, said a Princeton University psychology and public affairs professor yesterday at the Behavioural Economics Symposium, organised by the Civil Service College and the Lee Kuan Yew School of Public Policy.

Having a bigger budget is akin to having a larger suitcase with more room to spare and less need to focus when packing, said Professor Eldar Shafir, who has studied ways in which poverty captures people’s attention and distracts them from other decisions. Having a smaller budget, like having a smaller suitcase, forces one to choose among important items that do not fit, making it hard to maintain any slack, he added.

“(The single bandwidth we have in our minds) is the one we use to do our banking, remember to take our medication on time, eat healthy and attend to our children’s homework,” he said. “It means that if I give you some bandwidth gift in one area of your life, you might use it elsewhere.”

He added: “I think it’s very, very common for all of us, and policymakers, to assume, when we see somebody fail to show up, that they gave up too quickly or that they forgot, so they didn’t care enough. All the intentions might be there but if they didn’t come, it might be just from being overwhelmed. It really opens up a whole different vista worth of causes and how to treat them.”

Prof Shafir was one of three overseas speakers, including Harvard University professor Cass Sunstein, who spoke to more than 200 civil servants and academics at the symposium held at the Civil Service College.

Interest in behavioural insights is growing in many parts of the world, and while such insights are not silver bullets, they can provide policymakers with new tools and a more nuanced account of how people make decisions in everyday life, said Dr Rory Gallagher of the Behavioural Insights Team (BIT). Established by British Prime Minister David Cameron in 2010, the BIT is a mutual joint venture with social innovation charity Nesta and the Cabinet Office in the United Kingdom.

Some randomised controlled trials involving behavioural economics have taken place in Singapore.

For three months until earlier this year, a group of jobseekers at a Community Development Council were given a booklet for them to set goals and monitor their progress. An incentive was also given after five visits to career consultants with stated commitments — such as doing up a CV — accomplished, or if the jobseeker found work in fewer than five visits. This group also met their consultants in rooms that had posters of “hot jobs” available and accounts of people who had found jobs.

Results showed that with such interventions, potentially 4,000 more jobseekers a year could find employment within three months.