Poverty and Decision-Making: The Scarcity Study and Mincome

Originally published 2017-12-29.

Why do people in poverty sometimes make choices that keep them poor, such as taking expensive loans, missing appointments or struggling to save? A widely cited 2013 study in Science offers an answer that has nothing to do with character: the strain of not having enough money uses up mental capacity, leaving less attention for planning ahead. The historian Rutger Bregman built a popular TED talk around that finding and around a 1970s Canadian experiment in guaranteed income. Here is what the research actually showed, where its limits lie and what it suggests for policy.

The short answer: scarcity takes up mental bandwidth

The study, "Poverty impedes cognitive function", was written by Anandi Mani, Sendhil Mullainathan, Eldar Shafir and Jiaying Zhao and published on 30 August 2013. Its central idea is that financial worry is not just unpleasant; it competes for the same limited pool of attention and self-control that people need for complex decisions. When money is tight, urgent problems crowd out everything else.

The researchers summed up the effect as comparable to a drop of about 13 IQ points, or to the impact of losing a full night's sleep. Shafir put the key point plainly in Princeton's announcement: "It's not about being a poor person — it's about living in poverty." In other words, the same person would think less clearly under the same pressure, whatever their income in better times.

How the study worked

Shoppers in a New Jersey mall

In the first set of experiments, around 400 shoppers were asked to imagine a car needing repairs. For some, the bill was small, $150; for others it was large, $1,500. While thinking about how they would pay, they completed tests of reasoning and self-control. With the small bill, poorer and wealthier participants scored about the same. With the large bill, lower-income participants did noticeably worse, while the scores of the better-off barely moved.

Sugarcane farmers in India

The second study followed 464 sugarcane farmers in Tamil Nadu who receive most of their yearly income in one payment after harvest. That pattern means the same households are short of cash for months, then comparatively comfortable. Each farmer took similar tests before and during the 2010–2011 harvest season. They performed better afterwards, when money worries had eased, even though nothing about them as people had changed. The design helped rule out the explanation that some individuals simply reason less well.

This is the study Bregman describes in his talk. Some retellings put the effect at fourteen IQ points; the authors' own comparison was about 13 points, and they stressed that it was an average measured on specific tests, not a permanent loss of intelligence.

What scarcity does to everyday decisions

Shafir and Mullainathan later expanded the idea in their book Scarcity (2013). They argue that any kind of shortage, whether of money, time or even food, narrows attention onto the immediate gap. Anyone who has rushed into a meeting hungry, or juggled too many deadlines, has felt this "tunnelling". Short-term problems get solved, but long-term ones such as saving, preventive health care or finishing a course drop out of view.

For people in chronic poverty, the pressure rarely lets up. That helps explain patterns that are often blamed on personal failings: high-cost borrowing, missed bills, skipped medical checks. Bregman cites a line he attributes to George Orwell, who wrote about living in poverty in Down and Out in Paris and London (1933): "The essence of poverty is that it annihilates the future."

The Mincome experiment in Dauphin, Manitoba

If scarcity itself drains decision-making, one obvious response is to reduce the scarcity. Bregman's example is Mincome, the Manitoba Basic Annual Income Experiment, funded jointly by the province and the Canadian federal government. Announced in February 1974, it ran a randomised trial in Winnipeg and rural Manitoba and a "saturation site" in the small town of Dauphin, where any resident could apply.

Mincome worked like a negative income tax: households received a guaranteed minimum, which was reduced by a set share of every dollar they earned (50 cents per dollar in Dauphin). It was not a flat payment to everyone, and it was not unconditional in the sense of ignoring income.

The programme ended in 1979 after Progressive Conservative governments came to power in Manitoba and Ottawa, and no final report was ever published. Claims that the evidence lay buried for a century are an exaggeration: the records sat largely unanalysed for about three decades. In 2011 the University of Manitoba economist Evelyn Forget compared health records for Dauphin with similar communities and found that hospitalisations fell by 8.5% during the programme, with fewer accident and injury visits and fewer mental health consultations.

The fear that people would stop working did not materialise on a large scale. Analyses by the economists Derek Hum and Wayne Simpson found modest reductions in hours: about 1% for men, 3% for married women and 5% for unmarried women, with parents of young children among those who cut back most.

What the evidence does and does not prove

The scarcity research and Mincome are both important, but neither settles every question.

• Replication is mixed. Some later studies, including research on US households tested before and after payday, found little or no cognitive effect, so the size of the effect probably depends on how severe and immediate the money worry is.
• Mincome's health findings are not a controlled trial. Forget's analysis compared Dauphin with other towns using administrative data, which is suggestive but not proof that the income alone caused the improvements.
• Poverty has many causes. Wages, housing costs, discrimination, health and local job markets all matter. Scarcity explains why poverty can be self-reinforcing; it does not explain everything.
• Later pilots are still being judged. Ontario's basic income pilot, for instance, was cancelled in 2018 before it could report full results, and results from cash transfer programmes elsewhere vary by design and context.

Practical lessons for policy and for people

The authors of the 2013 study drew a practical conclusion: services for people on low incomes should be "scarcity proof". That means simpler forms, fewer deadlines that trigger penalties, reminders, flexible training schedules that tolerate missed sessions and help with applications, the kind of support wealthier people often get from assistants, accountants or family.

On a personal level, the research is a reason for less judgement. When someone in financial trouble makes a choice that looks unwise from the outside, it may be the most reasonable option visible from inside the tunnel. For anyone under money pressure, small buffers, automating essential bills, and breaking big decisions into smaller steps can free up a little mental space.

Bregman's larger argument, made in his TED talk "Poverty isn't a lack of character; it's a lack of cash" and his book Utopia for Realists, is that a guaranteed basic income would be a direct way to give people that space. Whether you agree or not, the evidence he draws on has shifted the debate from blaming people in poverty towards asking what poverty does to people.

Sources: Princeton University, 29 August 2013: Poor concentration: Poverty reduces brainpower needed for navigating other areas of life; Wikipedia: Mincome; TED: Rutger Bregman, Poverty isn't a lack of character; it's a lack of cash. Story originally shared via Ideapod.