Working Paper

Scarcity and Intertemporal Choice

Abstract: Scarcity is a ubiquitous experience, and existing evidence largely suggests that people become more myopic when they feel their resources are scarce. Importantly, evidence for this proposition comes primarily from contexts in which scarcity threatens needs that require resources imminently. The current work examines instances in which scarcity threatens needs along a broader time horizon. Archival data from the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute and five pre-registered studies (N = 7,728) show that the time horizon of threatened needs is an important determinant of scarcity’s effect on intertemporal choice. Studies 1 and 2 measure perceptions of scarcity and demonstrate that scarcity’s effect on intertemporal choice is moderated by the time horizon of people's needs. Study 3 experimentally manipulates perceptions of scarcity and demonstrates a polarizing effect of scarcity on intertemporal choice. When scarcity threatens needs with shorter time horizons, scarcity increases choices of smaller, sooner outcomes; however, this effect attenuates and sometimes reverses when scarcity threatens needs with longer time horizons. Studies 4-6 examine process evidence and find that the effect of scarcity on intertemporal choice is driven at least in part by differences in the perceived relative marginal utility of intertemporal choice options, rather than other factors such as a general change in time preference. Our findings suggest that scarcity does not inherently lead to myopic decisions and contribute to the ongoing debate regarding how and why scarcity influences intertemporal choice.

Keywords: scarcity; myopia; intertemporal choice; financial decision-making; economic psychology;

JEL Classification: D11; D15; D91; G51;

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Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2022-09-01

Number: 22-27