Scarcity and cognitive function around payday: a conceptual and empirical analysis

CSAE working paper
Sendhil Mullainathan
Elar Shafir
Jiaying Zhao
Abstract

The ongoing demands around smoothing consumption with low and sporadic income flows in contexts of scarcity entail that minor changes in cash flows can have big psychological and behavioural effects. This paper examines the behavioural and cognitive impact of routine periodic fluctuations in financial status of the poor around paydays. In particular, the paper draws a link between a range of documented behaviours and an increase in scarcity-induced cognitive load, closer to payday. These results, along with others briefly reviewed, illustrate the outsized role in scarcity contexts of otherwise trivial changes in income flows and highlight the importance of carefully structured research designs in studying the myriad challenges in scarcity contexts.