Socioeconomic Status and Individual Decision Making

Socioeconomic disparities in life outcomes is a widely observed occurrence. In particular, low socioeconomic status (SES) has been related to a variety of behaviours that tend to perpetuate or even exacerbate the conditions that individuals of such social standing are already facing. The last two decades have been marked by a growing number of studies seeking to disentangle behavioural differences associated with one’s socioeconomic status that fuel the persistence of these differences. This Doctoral thesis joins the discussion by investigating a subset of behaviours associated with low SES. Three empirical chapters and one literature review seeks to answer the following questions: first, what are the consumer behaviour patterns exhibited by low SES individuals? Second, how do poverty-related thoughts influence consumption of (un)taxed temptation goods? Third, what is the effect of perceived individual control on intertemporal preferences? And fourth, how does salient socioeconomic status affect intertemporal choices regarding effort? Chapter 1 overviews literature on socioeconomic status and consumer happiness. We discuss channels through which low SES can impact consumption decisions and present main behavioural patterns of low SES consumers. Low SES has been found to have a significant impact on dietary patterns that include consumption of fruits and vegetables, foods with high calorie content, as well as consumption of temptation goods like alcohol, tobacco, and sugar-sweetened beverages. Moreover, low SES individuals also tend to engage in status-signalling behaviours, despite the scarcity of financial resources. We discuss how SES can delineate consumer happiness, in particular, regarding experiential and material goods. Finally, we review evidence on socioeconomic disparities in satisfaction with product-specific characteristics and health care as well as consumer loyalty. Chapter 2 presents an empirical investigation of the intersection between socioeconomic status and consumer behavior. In particular, we study demand for temptation goods such as alcohol, tobacco or high-calorie foods. One of the most conventional ways that governments control the consumption of these products is through taxes; however, a growing body of research shows the presence of numerous behavioral biases that might prove such fiscal policies less effective. One of these biases is related to financial worries - a concept familiar to deprived individuals. Previous studies have shown that increasing worries shift attention towards pressing needs, potentially at the cost of forward-looking decisions. We run an online experiment in which we manipulate financial worries and ask participants to choose between necessities and temptation goods in the experimental market. We also randomly impose taxes on temptation goods for a subset of participants. Results suggest that under financial worries and no taxes participants demand less temptation goods and this effect is stronger for lower income individuals. However, when taxes are introduced and financial concerns are salient, lower income participants do not react to taxes. This suggests that, on the one hand, financial worries can protect against over-consumption of temptation goods when there are no tax changes; however, low income consumers can be hurt the most when additional taxes are implemented. Chapter 3 investigates another psychological occurrence - a feeling of control - and its impact on intertemporal preferences. Generally, low SES individuals have less chances to exert control in their lives compared with high SES people. If perceived control has a substantial impact on the intertemporal choice, these disparities may have a long lasting impact that might make it harder to move up in terms of social status. In an online experiment we manipulate the feeling of control by asking participants to remember a certain situation. We vary control in terms of level - not having control vs being in full control – and type – being in a situation involving other people or a non-social situation. Afterwards, we ask participants to make intertemporal allocation decisions - either regarding a monetary experimental budget or a number of real effort tasks. We find no evidence of present bias in monetary discounting for either of the control treatments. Results are different for effort discounting: on aggregate level, participants in this condition reverse their preferences more often as they choose to perform more tasks sooner when the decision involves only future points in time, but less when the decision involves also present. Moreover, we find evidence of significant present bias in the low control condition. Allocation decisions are mediated by emotional states activated in the feeling of control manipulation: for money condition, the strongest mediator is the feeling of fear, while for effort discounting it is sadness. Overall, the results suggest that although recalling a situation of (no) control does not influence intertemporal allocation decisions regarding windfall money, it can impact decisions about the allocation of effort. Chapter 4 continues the discussion on intertemporal preferences and socioeconomic status. It is a well established that low SES is related to impatient behaviours. While many works have analyzed psychological channels which mediate this effect, such as cognitive load, stress, emotional affects, and self-control issues, this work seeks to test whether the mere salience of one’s subjective SES has an impact on intertemporal preferences regarding effort. In an online experiment, I prime participants on their SES and ask to make effort allocation decisions. I find that priming affects only low status participants: this group made more present-biased choices by postponing effort to the future even if it mean higher workload. No effect was found for nonprimed low SES participants or higher status individuals in both treatment and control groups. I conclude that even a mere act of making SES salient in your mind can have an adverse effect to low SES individuals by pushing them to postpone work to the future.