Social class and scarcity: Understanding consumers who have less

More than 4 billion people in the world earn less than $10 a day (World Bank, 2014). And despite having limited funds, the world's poor often have to pay more for various goods and services. Grocery staples might be 20 percent more expensive in poor communities, credit can be more than 5,000 percent more costly, and cashing paychecks generates enough fees to support billion dollar businesses (Mendel, 2005; Prahalad & Hammond, 2002; Talukdar, 2008). With such a large swath of the population facing such striking challenges, this raises the question of how consumers think and decide when resources are scarce. Of course, social scientists have studied poverty for as long as there have been social sciences, but our understanding of human behavior in these contexts has largely been shaped by work in economics, sociology, anthropology, and political science. Psychologists and decision-making researchers have only more recently begun a systematic study of how poverty and other conditions of scarcity affect behavior.Initially, psychological and behavioral economic theories responded to more standard economic views of poverty. One standard view suggested that the poor adapted to their environment over time and behaved optimally or rationally within its constraints. But the behavioral view highlighted how poor individuals make the same kinds of mistakes and exhibit the same biases that wealthy individuals do (Bertrand, Mullainathan, & Shafir, 2006). This approach showed how decision making in the context of poverty could be improved with nudges such as smart defaults, channel factors, and even interventions that considered a person's identity. This approach still overlooked an important fact: it assumed that the psychology of scarcity was no different from the psychology of abundance. The heuristics and biases were the same, but simply more costly for the poor.However, recent research suggests that scarcity creates its own psychology and mindset (Mullainathan & Shafir, 2013). A better understanding of how this mindset plays out in consumer contexts has the potential to improve consumer welfare. Further, because psychological research in this area is still young, there remain many open questions. This chapter describes the questions being asked, those that remain, and the frameworks being developed to answer those questions.The first section of this chapter focuses on how the fundamental experience of scarcity – having too few resources to meet all of one's needs – has profound consequences for how people think and decide.