Financial scarcity and financial avoidance: an eye-tracking and behavioral experiment

Abstract

AbstractWhen having less money than needed, people experience financial scarcity. Here, we conducted a laboratory experiment to investigate whether financial scarcity increases financial avoidance – the tendency to avoid dealing with ones finances. Participants completed an incentivized task where they managed the finances of a household by earning income and paying expenses across multiple rounds. We manipulated participants’ financial situation such that they either had sufficient (financial abundance) or insufficient (financial scarcity) financial resources. At the end of each round, participants received an additional expense in the form of a letter. To measure financial avoidance in the form of attentional disengagement, we used an eye-tracker and assessed whether participants in the financial scarcity condition avoided looking at the expense letters. As a behavioral measure of financial avoidance, participants had the option to delay the payment of these expenses until the end of the experiment at no additional cost. Results showed no effect of financial scarcity on the eye-tracking measure, but there was an effect on the behavioral measure: Participants that experienced financial scarcity were more likely to delay payments. The behavioral finding corroborates the notion that financial scarcity can lead to financial avoidance. We explore potential reasons for the null-effect on the eye-tracking measure and discuss how future research can build upon our findings.