Abstract

Scarcity sharpens the conflict between short term gains and long term sustainability. Psychological research documents that decision makers focus on immediate needs under scarcity and use available resources more effectively. However, decision makers also borrow too much from future resources and overall performance decreases as a consequence. Using an online experiment, we study how scarcity affects borrowing decisions in groups. We first document that scarcity affects groups in a similar way as individuals. Then, we go on to show that the negative effect of scarcity is weaker for groups than for individuals. Even in a minimal design that excludes direct interaction or communication, the fact that participants know that their own behavior affects and can be partly observed by another participant disciplines their use of scarce resources. Our results thus highlight the benefit of groups as units of human organization.