The Cost of Timing: Decisions Made in the Face of Scarcity

You’ve had a rough year financially, but there’s a bright spot on the horizon: You have a chance at a lottery prize where you could win $200 to spend immediately or $300 if you were willing to wait a few months. What do you do? 

It all depends on your given circumstances, said Eesha Sharma, professor of marketing at San Diego State University’s Fowler College of Business. 

Sharma, along with Stephanie Tully at the University of Southern California and Xiang Wang of Hong Kong’s Lingnan University, conducted five individual surveys on how people who perceived themselves to be poor made decisions compared to those who were financially stable. The findings, recently published by the American Psychological Association, indicated that those experiencing financial hardships tend to base their decisions on circumstance and timeline rather than merely choosing quick payouts over long-term profits.   

The researchers surveyed 752 people who were planning weddings about their upcoming nuptials. They were entered into a lottery in exchange for their participation. One set of participants were asked if they felt they didn’t have enough money to cover the costs of their wedding. Those who indicated “yes,” were then asked to choose their prize either as an immediate payout of $200 or a delayed payout of $300. For those whose weddings were scheduled before the $300 payout (July 1), the majority of survey participants indicated they would take the immediate $200 prize. 

At the conclusion of the study, the data consistently showed the timing of a critical need (such as food, housing or auto maintenance) was the most significant factor in determining the choice to take the smaller, but more immediate payout. This was only true for those who felt poor, as opposed to those in the control group who indicated financial stability. 

Prior to their survey, the researchers reviewed previous published findings which indicated that those perceiving a scarcity of resources were more likely to act impulsively due to stress, uncertainty or other factors, compared to those in a control group. However, when Sharma, Tully and Wang introduced a timeline to the survey participants, the results changed. 

“After we compiled all the data, we found that people who felt poor choose to wait for the greater payout at the same rate as the control group,” said Sharma. “However, the introduction of a near-term need gave us a different conclusion than previous research suggested.” 

“Our findings challenge the notion that people who feel financial hardship become impatient or shortsighted by making decisions that don’t necessarily lead to the best long-term benefit,” Sharma concluded. “The data indicated that those with a scarcity of resources make the best decisions they can based on their immediate needs.”

Note: The authors received no external financial support for the research, authorship, or publication of this research.