Scarcity: Why Having Too Little Means So Much

by Sendhil Mullainathan

The children who were most successful in resisting the marshmallow temptation did so by focusing their attention elsewhere. Instead of looking at and thinking about the marshmallow, they thought about other things. Instead of having to resist the desire, they simply arranged not to notice it. As Mischel put it, “Once you realize that willpower is just a matter of learning how to control your attention and thoughts, you can really begin to increase it.”

Oh damn

Whether it is eating cake we would rather resist or saying things we do not mean to say, a tax on bandwidth makes it harder for us to control our impulses.

And because scarcity taxes bandwidth, this suggests that scarcity not only can lower fluid intelligence but can also reduce self-control.

A small tickle of scarcity and they were suddenly more impulsive.

Unlike the manager, we are emphatically not saying that poor people have less bandwidth. Quite the opposite. We are saying that all people, if they were poor, would have less effective bandwidth.

diminishing marginal utility: the more you have, the less each additional item is worth to you.

food researchers have a name for it: they call these items cabinet castaways. Some estimates suggest that one in ten items bought in the grocery store is destined to become a cabinet castaway. In fact, many of our houses are castaway museums. Think of the last time you moved or cleaned out a closet and thought to yourself, “I don’t remember owning this!” These closet castaways are so common that space, not money, becomes the scarce commodity.

over $12 billion is spent annually on self-storage, three times as much as is spent on music purchases.

The Self Storage Association notes that “every American could stand—all at the same time—under the total canopy of self-storage roofing.”

If you see two flavors of ice cream you like, a diet forces you to pick the one you prefer. Slack—in money, time, or calories—allows you the luxury of not choosing. It allows you to say, “I’ll take both.” Contrary to Milton Friedman’s ideal of “free to choose,” slack leaves us free not to choose.

Slack not only absolves you of the need to make trade-offs. It means mistakes do not entail real sacrifice.

In one study, psychologists asked college seniors to estimate the time required to finish their senior theses. The average estimate was thirty-four days. When probed for the possibility of good and bad turns of events, they agreed it could range from twenty-seven days (if everything went really well) to forty-eight days (if things went badly). In reality, it took them fifty-five days on average. This is not just the folly of inexperienced undergraduates. Everyone from managers to movie producers suffers from the planning fallacy: we are all much too optimistic with our future plans. Even top-notch chess players can allocate too much time to earlier rounds and end up in “time trouble,” with too little time on the clock later in the game.

Here we see that slack provides a hidden efficiency. It gives us room to maneuver, to reshuffle when we err. Slack gives us room to fail.

Late fees are a penalty for misplanning or forgetting, yet they create an even more hostile environment for those living with scarcity.

What made the study remarkable, though, is what happened when we raised the background price. When the appliance cost $500, the percentage willing to travel barely changed; it was 73 percent. And when it rose to $1,000, the percentage willing to travel actually went up slightly, to 87 percent. The slight increase may be due to the feeling that one really must try to save when spending so much.

For most people, a $50 savings looks large for the $100 DVD player (50 percent off!), but small for the $1,000 laptop (a mere 5 percent savings). Yet those at the Trenton soup kitchen seemed unmoved by all this; their responses barely changed. How did scarcity—in this case in money—upend this traditional finding?

Along these lines, people have been shown to think of money as compartmentalized into separate accounts. For example, studies have found that when gasoline prices go up, people substitute lower quality gasoline. We act as if we’re “poorer” even when the added cost of gas does not materially affect our overall budget. And even then, we act as if we’re poorer “in gasoline.” (Think about it—if money were the problem, you could just as easily save by buying cheaper cookies or by golfing less.) This is because money is kept in local accounts: a negative shock to the gas account (higher prices) leads to penny pinching (and lower quality) in that account.

What they have is a specific skill: they are better at making ends meet today. They make a dollar go further. They become experts in the value of money. This expertise can make them appear more rational, less prone to inconsistencies, in some contexts. But this local expertise also becomes a hindrance. Along with the focus that brings expertise comes tunneling. And with tunneling comes a slew of negative consequences.

typical. In 2006, there were more than 23,000 payday lender branches in the United States, which was more than all the McDonald’s (12,000) and Starbucks (almost 9,000) locations combined.

Three-quarters of all payday loan volume comes from rollovers, ultimately accounting for $3.5 billion in fees each year.

About one of every six families in the lowest income quintile (the bottom 20 percent) pays at least one bill late in any given year.

At the extreme end of this are “reconnect” fees. One study found that 18 percent of the poorest families have had their phone disconnected and 10 percent have had a utility shut off within a twelve-month period. Paying $40 to have your phone service reconnected after failing to pay the bill in time is similar to paying a $40 fee for a loan to avoid the disconnection in the first place.

A 1997 study estimated that nearly 5 percent of the annual income of the poor was spent on reconnections and servicing and late fees, a number that we ...

Why do we borrow when we face situations of scarcity? We borrow because we tunnel. And when we borrow, we dig ourselves deeper in the future. Scarcity today creates more scarcity tomorrow.

When working to finish things quickly, the engineers tunneled. Inside their tunnel, a quick fix was just the thing needed. Cutting corners was the perfect solution; the cost would only show up later.

similar focus on the urgent at the expense of the important has long been observed in the workings of governments that, over decades of tight budgeting, have slashed spending on infrastructure. The upkeep of bridges, for example, is a critical investment. Yet it is one that is all too easy to put off when budgets are tight and cuts are needed. Decaying bridges are important but not urgent, and so, according to a 2009 report issued by the American Society of Civil Engineers, approximately one in four rural bridges and one in three urban bridges in the United States are deficient.

Could we re-create this in Family Feud as well? As before, subjects were asked to play several rounds. Once again, some were rich (they had many seconds per round to play) and some were poor (they had only a few seconds). But now we gave subjects a chance to look ahead a little, to prepare for future rounds. Half were given a preview of the next round’s question. They could think about that question in parallel to thinking about the current one. They could look at it and decide to save or borrow because they think they ought to spend more or less time on it. The previews helped. To be more accurate, they helped the rich, who looked ahead, took advantage of the information, and scored more points. The poor, on the other hand, did no better with the previews. They were so focused on the current round that they did not expend the mental resources required to look ahead. Scarcity kept them tied to the present, unable to benefit from a glimpse of what the future might hold.

Scarcity brings about behaviors that make us shortsighted. We ignore the (future) health cost of eating out when we are busy. We

Many of the busiest people who borrow time are the same people who have invested years in demanding careers and planned carefully how to get ahead. In fact, as far as personality traits go these people are anything but myopic; rather, it is the context of scarcity that makes us all act that way. Tunnels limit everyone’s vision.

Detailed research in the fascinating book Portfolios of the Poor shows that the poor use about ten distinct financial instruments on average.

Decisions—whether about a new purchase or a new investment—must now navigate this increasingly complex patchwork.

By juggling we—through our own behavior—make the problem more complex. The messy balance sheet of the scarcity trap increases the complexity and challenge of making ends meet.

In farming the end of the harvest cycle is when there is the most juggling. This is the time when the income from the previous harvest has run out. This is when, in our studies, people showed lower fluid intelligence and diminished executive control.

Juggling is not about being harried in time; it is about having a lot on one’s mind. Much of one’s bandwidth ends up being devoted to the balls in the air that are about to fall.

In the moment, faced with a particularly appealing project or purchase, we often can’t resist saying yes. Following through on a plan requires bandwidth and cognitive control, and scarcity leaves us with less of both.

Juggling makes getting out even harder. The unexpected happens. You have finally made a plan to climb out, and suddenly you are hit with a ticket for an expired car registration.

Escaping the scarcity trap does not merely require an occasional act of vigilance. It requires constant, everlasting vigilance; almost all temptations must be resisted almost all the time.

There is little evidence to show that willpower capacity increases with use. (Think of how ironic this would be relative to common belief: the poor having greater willpower!) And even if poverty did increase willpower, there is reason to think that this still may not suffice to yield the near infallibility required. Be that as it may, there is instead fairly good evidence to the contrary.

Recent research shows that self-control may actually get depleted as we use it. One study, for example, put dieters in a room with some highly tempting snacks (Doritos, Skittles, M&Ms, salted peanuts) and gave them a computer task to perform. For some, the snacks were placed, highly visible, on the table right next to them. For others, the snacks were far away, out of mind. Having completed the computer task, subjects were given access to large containers of ice cream. Those who had been sitting next to the snacks, continuously resisting the urge, finally caved. They ate significantly more ice cream than those who were less tempted by the distant snacks. Researchers in this field have likened willpower to a muscle, which fatigues with use. By this account, a persistent need to resist temptation would deplete, making it all the more difficult to escape the scarcity trap.

It says that periods of scarcity can elicit behaviors that end up pulling us into a scarcity trap. And with scarcity traps, what would otherwise be periods of abundance punctuated by moments of scarcity can quickly become perpetual scarcity.

Rather, this discussion highlights the need for instruments for buffering against shocks.

The next deadline is weeks away. Thank goodness, you can now relax. A few weeks later, you wonder where the time went. You are once again frantically working against the clock. Like the vendor’s scarcity, your scarcity originates with mistakes made during periods of relative abundance.

Staying clear of the scarcity trap requires more than abundance. It requires enough abundance so that, even after overspending or procrastinating, we still leave enough slack to manage most shocks. Enough abundance so that even after extensive procrastination, we still have enough time left to manage an unexpected deadline.

This person, you might say, is trapped by social scarcity. His loneliness is making it hard for him to meet new friends and creating behaviors that perpetuate his loneliness.

There is no borrowing; there is no failure to save for shocks. Instead the problems—ruining a punch line or failing to listen—come from trying too hard to be liked, from focusing too much on scarcity.

Studies have shown that the lonely overfocus. In one study, researchers asked people who rated themselves as lonely to talk into a recorder. They had no specific task. They were simply to describe themselves and be interesting. All they knew was that someone else would listen to them later and rate them. Predictably, when raters listened to what the lonely had to say, they were no...

Another version of the experiment shows that this interpretation misses something important. In this version, the lonely participants talked into a recorder with one important difference. This time they did not expect anyone to listen and to judge them. They were just talking, being themselves. In these recordings, independent judges now rated the lonely to be just as interesting as the nonlonely.

Remember the study mentioned in the introduction: the lonely were better at deciphering others’ emotions—that was their focus dividend. But when the stakes are high, they do not use these skills well. You could say the lonely choke. Think back to the situations where you have felt tongue-tied or particularly inept. If you are like us, you probably still remember some of those social situations that you botched exactly because you wanted them to go particularly well.

Of course, choking is not unique to the lonely. Nowhere is choking more transparent than in sports.

No matter how stellar the play to date, there is always trepidation in those moments. The drama is high exactly because we fear, or perhaps even anticipate, choking.