Friday, September 20, 2013

Scarcity: Why Having Too Little Means So Much by Sendhil Mullainathan and Eldar Shafir

In Scarcity, economist Sendhil Mullainathan and social psychologist Eldar Shafir introduce the study of scarcity as a ‘science in the making.’ One of their colleagues, perhaps a sceptic and certainly a joker, gibes: “There is already a science of scarcity. It’s called economics.” But the science of scarcity Mullainathan and Shafir have in mind is not familiar economics. Scarcity is much more the subjective experience (and hence a psychological phenomenon) occasioned by want. Scarcity, say Mullainathan and Shafir, ‘captures the mind.’

Scarcity is a condition that the authors easily recognize. They suffer the curse of the hyper-successful: they have insufficient time at hand to accomplish all they have committed to do. The lack of time preys on their minds (and promotes them to waste more time worrying and complaining about their lack of time) and sets off a cascade of real-life consequences: missed appointments, neglected family, unpaid bills. And perhaps more: a sense of helplessness, depression, despair. We wrote this book, the authors declare. "We were too busy not to."

And so the first scarcity -- the scarcity the authors experience -- is the shortage of time. But their field immediately widens to include debt and poverty, hunger and the dieter’s calorie-count, and loneliness. Scarcity collects these conditions and explores their dilemmas. While many will escape a particular form of scarcity (we are not all poor), all may experience some form of scarcity (as might a recipient of a MacArthur ‘genius grant,’ such as time-pressed Mullainathan). The authors assert the existence of essential commonalities across these states.

The authors play a bit fast and loose as they slide between the objective and subjective nature of scarcity. Scarcity seems to have an objective component; they are not concerned with the wealthy miser who believes himself poor. Nor are they concerned with the blessedly indifferent: the impoverished saint who is simply happy with what life provides. Scarcity is the conjunction of need and the perception of need. Shortage penetrates and works on our view of the world.

As such, much of Scarcity is an examination of the psychological effects of scarcity. Among the key effects of scarcity is ‘tunneling,’ the capture of our mind by what it is we need. The participants in the famous Minnesota starvation studies dreamt of food -- and lost interest in everything else. Imagine recalling a movie by its food scenes. Scarcity shifts our cognition and so affects our experiences and (more importantly for the story the authors tell) our decisions. Now ‘tunneling’ may not always be a bad thing -- an intense focus of the mind may open possibilities unreachable in a satisfied condition. But more frequently, tunneling causes us to stumble.

Mullainathan and Shafir speak about the ‘limited bandwidth’ that results from scarcity. This may or may not be the same effect as tunneling, but it is measurable; individuals experiencing scarcity score significantly lower on intelligence tests. Scarcity makes us stupid. The authors speak of a ‘tunneling tax’ or ‘bandwidth tax’ to capture the cognitive impairments that follow from scarcity. And these impairments -- and not ignorance -- explains many of the objectively bad decisions individuals make when they are too poor -- or too busy -- to think rationally. The Indian street vendor must ‘borrow’ the daily inventory on onerous terms. By simply saving through what seems to involve minor sacrifice (forsaking a cup of tea), in short order the vendor could double her income. Given the demonstrable self-interest, why can’t she do the right thing? Sadly, the authors show such street vendors can rarely escape their traps -- even when their inventory debts are eliminated. Other demands overwhelm them and scarcity more often than not is restored.

Virtue does not work. At least for most of us. Resolution is easy enough, but long-term vigilance is almost unsustainable; the authors cite research that indicates that vigilance generates a fatigue that leads to its own collapse. If these are truths, what Mullainathan and Sharif describe, they are disheartening ones.

What to do? Well, avoid scarcity, for one thing. But that’s not particularly actionable advice. We can, however, have more compassion for those (including ourselves) encountering scarcity. The authors call on the reader to forgive the inattentive fast food worker; she may be trapped in her ‘tunnel’ of overwhelming concerns and truly not hear our order (I will be more patient). We can structure our policies to avoid punishing the poor for the cognitive effects of scarcity by making the navigation of life easier. Should we tolerate ‘reconnection fees’ and ‘overdraft charges’ that are deliberately designed tripwires, exploiting the poor’s impaired ‘bandwidth?’ Can we create ‘slack’ -- reliable reserves of time or money -- that can be drawn on to meet the inevitable surprises that lurk in our futures?

Scarcity is longlisted for the 2013 Financial Times and Goldman Sachs Business Book of the Year Award.

See my reviews of these other longlisted books for the 2013 FT/Goldman Sachs Award:

Ray Fisman and Tim Sullivan, The Org
Neil Irwin, The Alchemists
Viktor Mayer-Schönberger and Kenneth Cukier, Big Data
Moisés Naím, The End of Power
Joe Studwell, How Asia Works

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