Imagine I stop you on the street and give you the following choice: I can either grab $7 out of my wallet and hand it to you now, no questions asked, or I can flip a coin to see if you win $5 or $10. Which one seems like a better option to you?
Now, imagine I reach into my wallet and pull out a crisp $10 bill. “Do you want this $10 now,” I ask, “or do you want to wait and get $11 tomorrow?”
For decades, researchers like me have used questions like these to better understand people’s preferences — or the underlying logic that people use to make their choices. By looking at the math behind the options and how you respond to said options, we can classify you into different categories. If you picked the $7 guaranteed, for example, you would be risk-averse because the math says the coin flip is actually worth more (the average of the two coin flip outcomes has an expected value of $7.50). This is your risk preference. If you picked the $10 today, we’d say you’re more present-oriented since you’re essentially willing to pay $1 to have the $10 today. This is your time preference.
While we know a lot about how people behave when given choices like these, there has been relatively less work done to understand why. And in those cases where explanations are explored — like how your social class or your testosterone affects your choices — even fewer take into account a critical point: you, as an adult making these choices, are the result of years of experience and development. You’re not making these choices in a vacuum, you’re bringing those past experiences with you to help make decisions in the present time.
Bringing together our expertise in anthropology, psychology, and behavioral economics, we came up with a framework that we think can help explain the effects of early experience on adult behavior. In this framework, which we refer to as the uncertainty management framework, we argue that people’s preferences are importantly shaped by early experiences with uncertainty.
Early on in childhood, people are asking certain questions about their surroundings. How stable is this environment? How much money does my family have? When things are bad, just how bad are they? We believe the early answers to these questions are important for forming preferences about uncertainty itself. So, for instance, when you think of an uncertain outcome — something that can either be good or bad, like the coin flip — does that seem like an exciting prospect or a dreadful thought?
We think that people raised in environments where that uncertainty was usually thought of as a bad thing are more likely to avoid it as adults. That is, for many people, uncertainty can lead to huge costs: an unexpected car problem can mean not having food for every meal or missing a few days from work due to illness might mean having to borrow money for bills. Those raised in environments where these were real concerns might now want to avoid uncertainty. And we think they may do this through risk-aversion and present-orientation — by avoiding risks they deem unnecessary and taking things now, instead of waiting for them later.
To test these predictions, we ran a large study with more than 4,000 adults online. We asked them a number of questions like the ones we described earlier, questions about guaranteed rewards versus risky rewards, about rewards today versus rewards in the future. We even gave them a little web-game where they blew up a digital balloon. For each successful pump, they earned money. But if they pumped too much, the balloon was more likely to explode and take all their money with it. They had to decide at what point they wanted to cash out. In this way, we got to see if their risk preferences from the various choices carried over into a more real, behavioral context.
Importantly, we also asked them about their childhood. We asked them to describe their family’s income to us when they were growing up, and whether they thought their family was high or low on the socioeconomic ladder.
We predicted that people who were raised in lower-income households would be less willing to take on risks and more willing to take things now, as opposed to waiting until later. This is because waiting in itself is an uncertain venture — who knows if the reward will materialize or whether you’ll even be around to collect it? Best to be safe and take the sure thing now.
Our predictions are supported by the results. Indeed, we found that those from lower socioeconomic backgrounds were significantly more likely to prefer the guaranteed outcomes (like $7) over the risky ones (like the coin flips). Relatedly, they tended to cash out earlier on the balloon task than their higher-income counterparts. They were also more likely to prefer present rewards over future rewards. They didn’t like waiting, maybe because that waiting itself is uncertain.
Interestingly, we also found that these early childhood experiences are related to our social preferences. In addition to these risk and time preference questions, we also had people play simple economic games with others for real money. In one of these, known as the Dictator Game, the first player is the dictator and gets to decide how to split some amount of money with the second player. The second player can’t respond and has to accept it. In another, known as the Ultimatum Game, the second player now gets a choice: they can either accept the first player’s division, or they can reject it, in which case they both get nothing.
When considering how uncertainty plays a role in social interactions, we thought that pro-social preferences — or those that are positive and intended to benefit another — could be thought of as another way to avoid uncertainty. After all, being prosocial is generally received well by the other party, but being selfish at someone else’s cost, even though it benefits you in the short term, could be costly in the long term. That other person could decide you’re a jerk and never help you again. They could even punish you. Best to avoid it altogether, no?
Well, it turns out that early childhood experiences were also related to these choices. Those that were raised in lower-income households were more likely to behave pro-socially in these games, to give more to the other player in both cases. Meanwhile, those raised in higher-income households were more likely to keep more for themselves in those games, perhaps because they were less concerned about the bad outcomes that may come from those decisions.
Overall, across a number of different tasks, we found that people’s early childhood environments were related to how they behaved as adults. Those raised in lower-income households were more likely to avoid risks, to prefer things now as opposed to later, and were also more likely to behave pro-socially. And interestingly, for both risk and social preferences, we find that these relationships hold true even after controlling for current socioeconomic status. Taken together, these findings suggest that there may be long-term consequences for early life adversity, over and above the current environment, and that the choices we make as adults are not being made in a vacuum; they are informed by our early experiences.
Published by Dorsa Amir
These findings are described in the article entitled An uncertainty management perspective on long-run impacts of adversity: The influence of childhood socioeconomic status on risk, time, and social preferences, recently published in the Journal of Experimental Social Psychology (Journal of Experimental Social Psychology 79 (2018) 217-226). This work was conducted by Dorsa Amir, Matthew R. Jordan, and David G. Rand from Yale University.