Scarcity and Predictability of Income over Time: Experimental Games as a Way to Study Consumption Smoothing

Abstract

Consumer research typically examines discrete financial decisions. These measures are uninformative about behavior over time, like consumption smoothing, the extent to which people spend consistently across periods of high and low income. We developed a multiround game to study consumption smoothing and tested hypotheses about initial resource scarcity and the predictability of income. The game was played by museum visitors across a wide age range (6–80+, N=2,104) and by online participants (N=1,294) in a preregistered partial replication. Participants spent their money in the game more smoothly over the multiple rounds when they had abundant rather than scarce initial resources, and this was particularly true when they received income on a predictable schedule. When income was unpredictable, initial scarcity did not hurt performance. We discuss implications for theorizing about the effects of scarcity.