Article Review

“Adapting to the Destitute Situations: Poverty Cues Lead to Short-Term Choice”

Review of a paper by Liu, Feng, Suo, Lee, Li (2012)

In previous posts (“Scarcity”, “Through the psychology of poverty”), we showed how scarcity affects the way people consider problems and take decisions. Although scarcity may concern many kinds of goods, including even available time, in this article we will consider only the lack of financial means. The underlying idea is that when people are wealthy enough not to have to worry about small expenditures, they do not need to spend mental resources on the task, whereas indigents have to invest time and thought on it.

This has a consequence: scarcity leads people to focus primarily on problems wherein shortage is more severely perceived, even though those same issues are not necessarily the most relevant ones for long term well-being. This compromises the individual’s ability to choose wisely.

Mani, Mullainathan, Shafir and Zhao (2013), following the same intuition, showed how Intelligence Quotient (IQ) test scores are correlated to the perception of poverty. In particular, by inducing thoughts about everyday small financial problems in poor subjects, they were able to severely diminish their cognitive ability, while leaving the wealthy ones unaffected. Interestingly, when no manipulation was performed, there were no significant differences between the rich and the poor’s test scores, suggesting that the reduction in cognitive skills was due to the stress linked to the fact of being (relatively) poor, and not to indigence itself. The idea behind this observation is that cognitive capability is limited and poverty – or simply a reminder of the fact of being poor – “taxes” it, leaving less to handle everyday choices.

Liu, Feng, Suo, Lee and Li (2012) took the discussion a step further: in this case, the considered subjects (all college students) were not poor, but simply cued into different economic statuses. In particular, they studied whether poverty cues affected inter-temporal choices under the general assumption that people exposed to poverty prefer a short-term but smaller reward.

In all experiments, participants could opt between a smaller but immediate payment and larger but later in time one. They were asked to take their choice before and after completing the priming task, so that the first one can be used as a benchmark. The games were repeated several times. In Experiment 1, subjects were primed in an explicit way by having to judge the degree of poverty or affluence (according to the group they were randomly assigned to) of several pictures; in Experiment 2 they had to count the number of people in each picture, so that the purpose of the experiment was less explicit; in the third one they participated in a lucky draw game in which they would gain a prize or nothing, thus being exposed to a moment of relative affluence or poverty.

22782124_10212901226357233_1588832224_nPictures representing “poverty” and “affluence” from Experiments 1 and 2.

In every experiment the groups assigned to the different cues were balanced, as the percentage of present biased individuals was the same. However, after completing the task, subjects who had been exposed to poverty cues became significantly more prone to opt for an immediate but smaller payment, while those cued into affluence showed a non-significant increase in the choice of the later but larger prize. Results were the same in each experiment, thus suggesting that the environment influences individuals’ perceptions, which is in turn reflected in time preference. Indeed, according to the authors, the poor are subconsciously associated with an unstable context and a lack of means to deal with it, whilst the rich are perceived as economically independent. As a consequence, people, when exposed to situations of poverty, felt more in need of liquidity to deal with uncertainties and hence opted for a smaller but closer-in-time reward. Moreover, the fact that the choices of the other group did not change suggests that individuals are more sensitive to negative cues.

22833343_10212901224477186_1592177517_o22812843_10212901225637215_307340708_oResults from Experiment 2 and 3 respectively: mean percentage of immediate reward as a function of the manipulations of the ‘‘poverty’’ state (left) and the ‘‘affluence’’ state (right), with pre-test (brown) vs. post-test (green) percentage of demand for immediate payments. Error bars indicate standard errors of the mean.

Therefore, the authors conclude that  “just the feeling of poverty influences intertemporal choices – the actual reality of poverty (restricted resources, etc.) is not necessary to get the effect”.

 

References:

Liu L., Feng T., Suo T., Lee K., Li H. (2012), “Adapting to the Destitute Situations: Poverty Cues Lead to Short-Term Choice”, PLoS ONE, Vol. 7, No. 4: e33950.

Mani A., Mullainathan S., Shafir E., Zhao J. (2013). “Poverty Impedes Cognitive Function”, Science, Vol. 341, No. 6149: 976-980.

Mullainathan S., Shafir E. (2013), Scarcity: Why Having Little Means So Much, Times Books, New York.

 

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Article Review

Paracetamol packs’ size, frictions and deaths

Review of Hawton K., Bergen H., Simkin S., Dodd S., Pocock P., Bernal W., Gunnel D., Kapur N. (2013)

Have you ever noticed that sometimes very small obstacles prevent you from completing a task or pursuing an objective? For instance, you might have thought about changing your phone provider since your offer was not convenient anymore, but you never did it. Why? Probably just because you’d have to walk to a store and sign a couple of papers. Rationally you should do it: not even an hour of your time could possibly save you hundreds of euros, but still you do not. And your phone company knows about it and doesn’t bother to decrease the price of your plan, even though it is not competitive anymore.

Behavioural economists call those apparently insignificant impediments “frictions”. They help explain why in some countries only a few people decide to donate organs, while in others more than 90% of adults do so. Organ donation is quite an important matter and it sounds reasonable to invest a few minutes to express a preference on it. However, in reality, people do not. Indeed, the number of donors in countries in which donation is an opt-out (people are registered as donors by default) is 60 percentage points higher than in countries in which people have to opt-in (a 30 seconds procedure). Huge right? (for further details, refer to Johnson and Goldstein, 2004).

Similar results were found when investigating savings plans for retirement (check Madrian and Shea, 2001) and there are hundreds of such examples: frictions affect our decisions. But what about more important decisions, such as committing suicide? Here is an example of how changing a marginal element in drug packaging actually kept people alive.

In many western countries, the ingestion of a large dose of paracetamol is a common method of suicide. Moreover, in case of survival, it causes hepatotoxicity, a fatal liver dysfunction that requires transplantation.

Hawton et al (2013) studied the effects of a legislation introduced in the UK in 1998 that reduced the maximum number of tablets per package to 32 when sold in pharmacies and 16 in stores (original version here). It also forbade the purchase of more than one packet in the same store. The law created a “friction”: although the obstacle created was very small, as people could easily purchase as much paracetamol as desired, just going to different stores.

To understand the consequences of the legislation, the authors implemented an interrupted time series design using the deaths tolls of paracetamol ingestion (excluding those labelled as accidents) from 1993 to 2009, the number of registrations to the waiting list for liver transplantation and actual liver transplants due to paracetamol poisoning from 1995 to 2009. The chosen cut-off point is the 3rd quarter of 1998, when the law was implemented. From that date, the authors compare the estimated numbers of deaths and liver unit registrations and transplantations, which might have occurred in the post-intervention period without the legislation, with the actual values.

Estimates were made with different methods, including a conservative one that assumed no increase after 1998 in the number of deaths, of registration to the waiting list or of actual liver transplantation, according to the regression considered. Moreover, since in those years there had been a reduction in poisoning with drugs in general (but not as significant and as steep), analysis has been adjusted accordingly. Results are still significant: over the 11 years after the law was introduced there has been a 43% reduction in deaths, equivalent to 765 fewer deaths labelled as suicide or left as open verdicts, and 990 fewer deaths if accidental poisoning verdicts were included.

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For what concerns liver transplants there has been a 61% reduction in registrations at liver units (482 fewer registrations), but the actual percentage of transplants has not significantly decreased. Results are not significant if the conservative method is used. However, authors explain that in those years, legislation made it easier to receive a transplant by lowering the required critical values, and that a new antidote had been made available, thus increasing the chances of getting a transplant on one side and reducing the need for one on the other. Hence, a non-significant decrease might actually hide a significant one.

To conclude, reducing the number of tablets of paracetamol per package, an inexpensive and easy to implement policy, produced remarkable results reducing the number of suicides and of registration at liver units (consequently also lowering NHS costs and the demand for transplants, usually undersupplied). Thus, frictions do influence even very serious decisions and this is true especially in situations in which people are less rational, or act under an impulse. Now the question is – can we use this knowledge in other contexts to make people’s lives better?