Scarcity and Choice

Posted on July 30, 2011


I just took my first around the world visit to the branches at my credit union and inadvertently stumbled across the real life application of an amazingly interesting article by David Brooks in the NYT, The Unexamined Society.

In this article, Brooks reviews research done by Eldar Shafir of Princeton and Sendhil Mullainathan of Harvard that argues against historical economic norms; mainly, that consumers act in a rational manner. Rational consumer behavior to an economist means that consumers weigh their options out and pick only the one that provides the most benefit. Anyone that has watched someone buy milk at Harris Teeter instead of Target already knows that finding rational consumers is as likely as finding a leprechaun in Alabama.

Begging for New Glarus Brewing to bring this to NC

But why are rational consumers so hard to find? Because people have lives. Between overtime, playtime and story time, who has time to compare prices and travel around the city to find all the best deals. All of those worries and tasks create a scarcity of cognitive ability, meaning there isn’t any room, any desire or even any ability to weigh options rationally. Instead of asking “is this the cheapest, best milk available,” we ask “now, where did they put the Spotted Cow and Oreos?”

Shafir and Mullainathan set out to prove this theory by first giving tests to determine decision making ability, IQ and even an eye sight test to Indian sugar cane farmers after they sell their harvest and right before harvest. After their harvest the farmers scored well on all tests. However, when the farmers were tested before the harvest,

“they live amid scarcity and have to think hard about a thousand daily decisions. During these seasons, these same farmers do much worse on the tests. They appear to have lower I.Q.’s. They have more trouble controlling their attention. They are more shortsighted.”

But our members aren’t Indian sugar cane farmers, you might say, but neither are Princeton students who the researchers then tested:

“In one game, [Princeton students] had to answer questions in a series of timed rounds, but they could borrow time from future rounds. When they were scrambling amid time scarcity, they were quick to borrow time, and they were nearly oblivious to the usurious interest rates the game organizers were charging. These brilliant Princeton kids were rushing to the equivalent of payday lenders, to their own long-term detriment.”

Bringing it Back Home

Clearly, scarcity of time, attention, and money shapes our world drastically. We must figure out how our members’ lives are affected so that we can communicate more effectively with them – this is where the branch visits come back into play.

  • How many of your branches are on bus lines?
  • How many guarantee a set time period to get an approval?
  • Is your credit union only open during hours when your members are working?
  • People spend most of their time in branches at teller lines, are there benches or signage around these lines?
  • What activities do your members need to do? Is there a branch near those locations?

This last question is most troublesome. In The Blended Walmart Business Model, Filene fellow Robert D. Manning, PhD  shows that Walmart provides a serious challenge to CUs.  The further they go down the path of getting a bank charter, the closer they are to providing loans and deposit products to everyone that walks into their doors.  The one-stop convenience will be a huge draw, no matter what the products are that they offer.  If scarcity can cause people to be shortsighted, it will certainly make it impossible for members to fairly evaluate financial products.   Just getting the loan and deposit products they need while they shop will be far more important than terms and conditions.

The challenge then is to account for scarcity in members’ lives and shift your marketing and products accordingly.  Products must either be meaningfully unique or cheap; otherwise, people won’t bother.

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