Pack Your Bags! Why the size of your suitcase matters more than you think.

While preparing for your last holiday, how hard was it to pack your suitcase? Well, that probably depended on two things: the amount of stuff you wanted to bring, and the size of your suitcase. This is a wonderful analogy for many decision areas in life. For those of us trying to lose weight, the “stuff to pack” represents the amount and type of food we’d like to consume, and the suitcase represents the restricted calorie count of our diet plan. For those of us struggling with poverty, we must determine how to best cover our bills, grocery shopping, and other purchases, given our finite budget.

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Referred to as combinatorial optimization problems in geek-speak, these ubiquitous problems arise when we are faced with many choices of things to “pack” and a fixed space in which to fit them. When our suitcases are large, or we have few things to pack, there is no problem – everything we need can easily fit into our large case and we may even have some spare space left over (for souvenirs!). But as soon as our demands grow or our suitcase shrinks, so that our requirements outweigh our allowance, trade-offs emerge. If I bring a beach towel, I don’t have room for my trainers. Or more critically, if I pay my water bill, there’s not enough left to buy new school clothes for my kids; if I pay off my credit card bill, I can’t afford to cover my rent or mortgage. Ultimately, the smaller the suitcase, the more complex the decision-making process of what to pack becomes.

Eldar Shafir of Princeton and Sendhil Mullainathan of Harvard University use the packing metaphor to explain why circumstances such as poverty, being time-poor, or being overweight seem to self-perpetuate. They argue that the very existence of scarcity of a given resource – be it money, time, or allowed calories- may impede “rational” decision-making. This is because the stress of managing the complexity of the packing problem effectively uses up some of our cognitive resources, such as attention and self-interest, which are required to reach optimal decisions.

In other words, the stress of having not enough money to meet my financial requirements may actually impair my ability to take a decision which could in turn help alleviate the situation. This insight is important, as it provides an alternative to the existing theories about the behaviour of the economically disadvantaged – one being that people in poverty are making rational decisions given the circumstances in which they find themselves, and another being that behaviour is driven by what some term a “culture of poverty’ based on deviant values”. Instead, it may be that despite best intentions, complexity depletes our already limited stock of cognitive resources, and the mental effort required to choose the most lucrative option simply outweighs that stock.

It’s interesting to see how these situations can be self-reinforcing, using the thematic framework set out by the RSA’s Social Brain project. The RSA looks at attention, decisions, and habit as key components of behaviour change. First, the increased complexity associated with scarcity exhausts our stock of attention and self-control. This in turn affects our ability to make decisions and choose options which are in our own self-interest. Finally, habits may start to form based on this sub-optimal decision making. Once behaviour becomes habitual, it becomes more difficult to change. It is clear how slippery this slope may be.

A challenge is to find some potential solutions to mitigate the effect of the packing problem in the realm of personal finance. Could one be to make financial advisors more readily available, especially to those on low income or who are recently unemployed?

A financial advisor or other external support may be able to help assess the situation with a fresh perspective, unencumbered by the stresses and cognitive strain of poverty. Have you seen instances in your own life where scarcity has made a noticeable difference to your decision making? If so, have you been able to tackle it - or has the “bad” decision now become habitual? Your insights may shed light on how to help lift some of us out of perpetual cycles of behaving against our own self-interest.