Don’t make decisions about money when you are poor

Ah, behavioural economics. Remember when we imported evolutionary biology into psychology and how suddenly neither field had any stupid ideas in it? It looks like we’ve done it again. Astonishingly, hungry people value filling, energy-dense food a lot. Well, yes. That’s what the word “hungry” means.

You should never make decisions about food when you are starving. When you go to the supermarket hungry, the food you are drawn to is high-calorie junk food,” said Dr Alain Dagher, a neurologist at the Montreal Neurological Institute. “You assign way too much value to calories and so way too little to health and other things.”

No, you should never make decisions about food when you are starving. By the same logic, I suppose, you should never make decisions about money when you are poor, or about charity when you are rich. Of course, if you’re hungry it is rational to want calories. You do, in fact, want calories in the old sense of the word “want” – you need more of them. Presumably, you should wait until you aren’t as hungry before deciding what to eat?

Before we descend into cheap snark, there’s an important point here. Dagher is quoted down at the bottom of the article as saying that this may explain why people who miss meals and eat at irregular hours tend to get fat. Fair enough, and good advice. But the problem is that by the time you get off the third bus and stand in front of the aerosol-cheese aisle, you’re hungry. You’re not somehow faking it, and signs lecturing you about healthy eating aren’t going to stop you eating. The point is to avoid getting into this position in the first place, which might involve things like changing jobs or moving that are difficult and require resources.

Similarly, fans of “nudge” tend to complain that poor people make bad decisions about money, typically by prizing cash up front above everything. To put it in econospeak, irrational discounting leads them to have extremely high liquidity preference. But liquidity is useful, and people tend to want it if they are facing a dangerously uncertain future. And typical reasons to need cash fast include things like “topping up the electricity meter”, “the kids are hungry”, “collection goons are threatening physical violence”. It’s not as if they don’t need cash on hand for very good reasons.

Where is the line between responses that are merely insufficient, and ones that actually tip over into mockery?

14 thoughts on “Don’t make decisions about money when you are poor

  1. It goes back to Fran Lebowitz’ crack in the 1980s about certain classes in NYC and their attitude to rented housing: “Why rent, when it’s so much cheaper to buy?”

    More generally, perhaps newspaper editors should check to see whether their contributors know they’re born before accepting their copy.

  2. “Presumably, you should wait until you aren’t as hungry before deciding what to eat?”

    Well, you should eat a little something, even just an apple, before you *shop* for food. I don’t know what the English term is but in German it’s “Heißhunger”, the carb cravings you get when your sugar is down. I don’t think he’s talking about real hunger here, just the “I’m starving!” type, which will lead a person to put all sorts of things in his or shopping cart, and mouth. There is definitely a difference.

  3. Yeah I do find it amazing that the people who carry this kind of research never think to *ask* people *why* they do things.

    Insitutional economics was about economics being invaded by cognitive psychologists who knew about experimental technique and statistics. Economists who do experiments do not have training/experience in these things, and consequently their research tends to be pretty bad. Kahneman has mentioned this on a few occasions.

  4. Uggh, can you not change the spam protection. I keep losing posts because I forget to fill it in.

    I mean to write Behavioural economics, rather than institutional.

  5. I think there’s also a difference between going to a restaurant hungry and going to grocery store hungry. In the first case, you’ll end up buying a bigger meal since you’re hungry. It’s a one time thing. When you go to grocery store, you’ll likely buy things for several meals – and thus you’ll end up buying food stuff that you want now that you’re hungry, not the food stuff you might want when you have time to prepare your food before you get too hungry.

  6. A Marie Antoinette moment!

    Essentially what you are saying is the argument assumes you have the luxury of choice which puts you in conflict with decisions ruled by evolutionary imperative.

    Someone who is poor may always be hungry/looking for the next meal and will always need to keep all their money in cash because their basic consumption needs require it. This is rationale. The hunder never knows when his next meal is coming from.

    Never go into the super market when you are hungry is OK for those who can make that choice.

    Loading up on high fat/high carbohydrate food may actually make perfect sense for those who are poor: the body is programmed to make these choices in these instances. Hundreds of thousands of years of evolutionary imperative have determined so. In this way these decisions are not actually one of poor choice, but of circumstance.

    Let them eat “healthy low fat” choices. A Marie Antoinette moment.

  7. High fat high carbohydrate foods tend to be cheap. Also if you’re poor, cooking can sometimes be tricky.

  8. Thank you for writing this. I’m a fat, poor, 53 year old mom who shops with kids who are poorly dressed and hopping up and down for ‘something’. There are so many things I can’t give them, but I can give them oreos. And I do, and I feel bad about it, but I feel bad about everything, and we WERE all happy and having fun when we put the oreos in the cart, and when we put them away in the cupboard, and when we hauled them out on Friday night.

    I wonder if all these bright people have ever done a survey asking rich moms how often they can say yes to their kids? It would be easier to tell my kids no to oreos if I could say yes to a 2nd pair of shoes or a new set of colored pencils.

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  10. Wait, is this piece actually arguing against the whole field of behavioural economics on the basis of the unsupported assertion that all people are everywhere and at all times economically rational agents?

    Aren’t we supposed to be, you know, mocking that assertion?

  11. No, it’s not. It’s arguing a) that a breathless eureka report that can be summed up as HUNGER CAT SEZ CAN I HAZ CHEEZBURGER? is funny, b) that if you are really hungry you’re not being irrational to want food, far from it, and c) that trying to solve people’s social problems by making them “more rational” at these moments is just missing the point.

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  13. But liquidity is useful, and people tend to want it if they are facing a dangerously uncertain future.
    Yes.
    I’m carrying credit card debt for the first time in my life (about $5,000). I also have $8,000 in the bank. Most financially literate people would say this makes no sense. Pay down the credit card debt because the interest I’m paying exceeds any return that I’ll get on my cash, whether it is in a savings account or used to purchase a reasonably risky investment. But, I am unemployed. Thus, I have no incoming streams of cash. But there are some expenses that I can only pay in cash: rent, health insurance, car insurance, minimum payments on the credit card debt, and student loan payments. Without income, I perceive a much higher liquidity risk. Forgoing returns on investment and incurring an interest expense from my credit card debt are the costs of mitigating that liquidity risk by preserving my last pile of cash.

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