Research master thesis | Psychology (research) (MSc)
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Poverty in the UK has increased, particularly after the Covid-19 pandemic. To prevent people from falling into a poverty trap, it is important to understand how financial scarcity affects financial...Show morePoverty in the UK has increased, particularly after the Covid-19 pandemic. To prevent people from falling into a poverty trap, it is important to understand how financial scarcity affects financial decisions involving risks. This topic lacks consensus in the literature with some authors arguing for a tendency towards more risk-taking, while others arguing for more risk aversion. This study posits that the risk tendency is influenced by frames of gains and losses. More specifically, financial scarcity leads to more risky choices in the domain of losses (H1), whereas it leads to less risky choices in the domain of gains (H2). People in financial scarcity tend to experience negative affect that impacts their cognitive systems, leading to more reliance on System 1 thinking, which exacerbates biases, such as the reflection effect. To test the hypotheses an online survey was conducted and 200 participants from the UK were recruited via Prolific Academic. The participants were divided into two groups for the manipulation of financial scarcity using the household task. Half of the participants were in the debts condition (financial scarcity), whereas the other half were not (control). Subsequently, all participants were presented with six risky choices, where they had to choose one of two options (one risky, the other conservative) framed in both gains and losses and three combinations of probabilities. Results from a Generalized Mixed Model showed that the cognitive bias associated with the reflection effect was found to be equally present in everyone and was more pronounced for more extreme probabilities (e.g., 10%/90% and 20%/80%), but not for moderate probabilities (e.g., 40%/60%). Thus, the expected interaction between debts and frames was not confirmed. It is suggested that future studies use an intuitive decision-making manipulation with more extreme probabilities (e.g., 1%/99%), consider a field risk manipulation, an incentivized lottery and the same expected value within and between probabilities at the lottery.Show less
