Scarcity: Why Having Too Little Means So Much

by Sendhil Mullainathan

earlier. For example, we can use tunneling to our advantage. Offer high-fee loans to deal with current fires. These loans will be attractive in the tunnel, and we can use the high fees to build a savings account. Better yet, create products that prevent the firefighting. We saw how scarcity traps and juggling often follow lax management during times of relative abundance. Why not help then? Build a financial product that takes a farmer’s harvest payment and smooths it out, effectively yielding a monthly income.

Considerations of bandwidth suggest that something as simple as giving cash at the right time can have big benefits. If done correctly, giving someone $100 can serve to purchase peace of mind. And

One cash transfer program in Malawi showed a 40 percent reduction in the psychological distress of low-income participants.

Now, rather than looking at education, health, finance, and child care as separate problems, we must recognize that they all form part of a person’s bandwidth capacity.

And just as a financial tax can wreak havoc in one’s budget, so can a bandwidth tax create failure in any of several domains to which a person must attend. Conversely, fixing some of those bottlenecks can have far-reaching consequences. Child care provides more than just child care, and the right financial product does much more than just create savings for a rainy day. Each of these can liberate bandwidth, boost IQ, firm up self-control, enhance clarity of thinking, and even improve sleep. Far-fetched? The data suggest not.

In the United States, once a person has fallen into the social safety net, she is bound to return to it again and again. And training programs appear to be only moderately effective. Researchers who have sought to estimate their impact have found some benefits: they are worth the investment, but they are not able to alter the course of poverty. Changing neighborhoods also only helps a bit. One experiment in the United States moved thousands of families from low-income to higher-income neighborhoods, and found modest impacts, primarily on stress and quality of life, but the underlying patterns of poverty did not change.

Microfinance—providing small loans to help start small businesses—has been touted as highly transformative. While the impact of microfinance is likely positive, several studies now suggest that it is unlikely to change the fundamental logic of poverty. Feeding programs show some impact on children’s learning. Education has a robust but quite limited return. For years, nonprofit organizations have tried to provide a variety of holistic packages to address the varied needs of the poor. Surely they are doing good work. But they, too, have observed only modest returns.

But perhaps the problem is not in what these programs are trying to deliver but with the actual delivery. Like the bomber cockpits of World War II, these programs might achieve greater success through better design. And a better design will have to incorporate fundamental insights about focusing and bandwidth that emerge from the psychology of scarcity.

You finally have no choice but to defer one of today’s tightly packed obligations to the next day, except, of course, that tomorrow’s schedule is “efficiently” packed, too, and the cost of that deferral ends up being high. Sounds familiar? Of course it does. You have undervalued slack. The slightest glitch imposes an obligation you can no longer afford, and borrowing from tomorrow’s budget comes at high interest.

When the intangible future comes face to face with the palpable present, slack feels like a luxury. It is, after all, exactly what you do not feel you have enough to spare. What should you do? Should you leave spaces open in your schedule, say, 3–4 p.m. Monday and Wednesday, just in case something unexpected comes up, despite the fact that there is so much you’d like to do for which you have so little time? In effect, yes.

Everyone falls behind, and it has been observed that organizations that are firefighting tend to allocate smaller teams to new projects, since much of the staff is still helping fight the last fire.

firefighting organizations have several features in common. First, they have “too many problems, not enough time.” Second, they solve the urgent problems but put off the nonurgent ones, no matter how important. Third, this leads to a cascade so that the amount of work to be done grows.

A thorough five-year study of four top manufacturing firms in the United States documented multiple instances of firefighting. As one manager puts it: “If you look at our resource allocation on traditional projects, we always start late and don’t put people on the projects soon enough … then we load as many people on as it takes … the resource allocation peaks when we launch the project.” Based on their years of study, the researchers conclude, “There are few images more common in current discussions of R&D management than that of the overworked engineering team putting in long hours to complete a project in its last days before launch.”

Firefighting does not just lead to errors; it leads to a very predictable kind of error: important but nonurgent tasks are neglected.

The truly efficient laborer will be found not to crowd his day with work, but will saunter to his task surrounded by a wide halo of ease and leisure. —HENRY DAVID THOREAU

One study, on construction projects, found that “where a work schedule of 60 or more hours per week is continued longer than about two months, the cumulative effect of decreased productivity will cause a delay in the completion date beyond that which could have been realized with the same crew size on a 40-hour week.” In a very different industry, a software developer notes that when his staff began putting in sixty-hour weeks, the first few weeks would see much more work getting done. But by week five, the employees were getting less done than when they had been working forty-hour weeks.

By far the most common answer was time. But respondents often qualified this—they didn’t want more of the same kind of time, they wanted more unstructured time that did not have specific outputs or procedures attached to it. The managing director … put this very well when she yearned for “time to play … time to gaze out the window … time to let things settle … time to read and react.”

When you run out of time, you sleep a little less and squeeze in a few more hours of work. Yet the effects of sleep on productivity are striking. Studies have repeatedly shown that when workers sleep less they become less motivated, make more errors, and zone out more often. One clever study demonstrated this by looking at the start and end of daylight savings time, nights on which, because of the time change, people lose sleep. It found that people spent 20 percent more time cyberloafing—searching the web for unrelated content—for every hour of lost sleep on those evenings. And that is just one night of sleep.

These same researchers tried a pilot “energy management” program. This included breaks for walks and focusing on key factors such as sleep. In the pilot study, they found that 106 employees at twelve banks showed increased performance on several metrics. Perhaps this sounds far-fetched. But how different is this from how we manage our bodies?

Increasing work hours, working people harder, forgoing vacations, and so on are all tunneling responses, like borrowing at high interest.

restaurant business is really about seating scarcity. How many seatings can you fit in? You get more seatings if you can squeeze in more tables. You get more seatings if you fit more people per table. You get more seatings if you can turn tables over faster, if you get four sets of customers out of a table each evening rather than three.

About five minutes before a meeting is scheduled to end, his assistant shows up and announces, “Five minutes left.” And at the end of the meeting, his assistant shows up again.

The assistant knocking at the door is not a particularly innovative intervention, but it illustrates something profound. Small changes to one’s circumstances can short-circuit the consequences of scarcity.

In the same way, we can “scarcity-proof” our environment. We can introduce the equivalent of rumble strips and helpful assistants, using our insights into why things go badly to build better outcomes.

Bolivia, Peru, and the Philippines. We built upon the insight that the poor fail to save partly because of tunneling.

So we brought savings back into the tunnel for a moment by making it top of mind. Having asked people what they were saving for and how much, we would send them, at the end of each month, a quick reminder—a text message or a letter. This benign reminder alone increased savings by 6 percent, a strikingly large effect given how infrequent and nonintrusive this was.

We were able to increase savings not through education or by steeling people’s willpower but merely by reminding them of something important that they tend to overlook when they tunnel.

Of course, insights about tunneling can also be used to exploit. You might set high late fees and then not remind people of the impending charges.

A busy person will too readily neglect the gym, which is important but never urgent. Signing up for a personal trainer reduces this problem.

Impulses, rather than reminders, are also easy to bring to the tunnel. Supermarkets have long understood this. They saw an easy way to make money: place candy bars at checkout counters.

Much like candy bars, impulse savings cards are left to hang at prominent locations, such as next to cash registers. They have pictures on them that portray people’s savings goals—such as college, a home, or a car—designed, like a candy bar, to create an urge. Except that when they “buy” these cards, people are actually saving: the dollars they pay get transferred into their savings accounts.

The cards not only combat tunneling by bringing a person’s latent goal to the forefront; they also provide an easy way to act on it—“buy this card”—before the goal fades.

poor), we found a surprising number of people eager to...

In 2008, the Massachusetts Registry of Motor Vehicles thought of a way to reduce costs. All the letters they were sending to remind people about their soon-to-expire car registrations were costly. So they got rid of these reminders. In a way this made perfect sense, but in light of our analysis, you can see why it might be foolish. Registrations expire at a fairly random time, solely a function of the last time you registered. Without a reminder, it is hard to remember the date. For the poorest and the most hurried, these reminders were likely the only thing that kept the registration from expiring and risking a ticket for the car owner. In effect, with this simple policy change the state had (inadvertently?) imposed a regressive tax.

Policy makers can spend millions of dollars in shaping attitudes toward savings but then fail to incorporate reminders urging people to save. We

At those companies where new employees had to opt out, more than 80 percent had enrolled in the 401(k) plan. At those companies where new employees had to opt in, only 45 percent had enrolled. Changing the default—what happens when a decision is neglected—can have strikingly large effects.

You only need to sign up for the gym once, whereas going regularly requires vigilance—doing the right thing again and again. We can think of choices as coming in one of two varieties: vigilance and one-off. Vigilance

bad behaviors need be done just once to cause the pain: borrowing, taking on an ill-advised commitment, making an unwise purchase.

Spending time with your kids invariably suffers when it depends on your vigilance, but if you sign up for a weekly activity together, that one-time action ensures that you will have a minimum amount of quality time together each week.

Some policy makers have proposed “cooling off periods” for car purchases, and similar arrangements may be wise for loans of every variety (money, time, calories, and so forth). Essentially, you are setting up a system that requires you to confirm the decision several times before you actually commit to it.

turn automatic renewals into acts of vigilance. When was the last time you checked if there might now be more affordable car insurance than the one you so meticulously chose years ago?

One insight of the psychology of scarcity is the need to prepare for tunneling and to insulate against neglect: navigate so that bad choices are harder to make in a single moment of tunneling, and arrange it so that good behaviors require little vigilance yet are occasionally reevaluated.

Once $200 has been accumulated in this account—in this case, after eight loans—the person no longer needs to borrow. When she needs a loan, she can use these savings instead.

Put simply, the truth about all those good decisions you plan to make sometime in the future, when things are easier, is that you probably won’t make them once that future rolls around and things are tough again.

At a moment of focus on the importance of exercise, buy a membership, hire a personal trainer, bet a friend, do what you can for this motivation to linger once you’re tunneled elsewhere.

clearly. A subordinate who delivers large amounts of unprocessed data is far less useful. Clear and simple syntheses are a terrific way to economize on cognitive capacity.

And trade-off thinking is both distracting and particularly bad for dieting since focusing on food makes it harder to resist. One study randomly assigned participants to diets that differed in their rule complexity and concluded, “Perceived rule complexity was the strongest factor associated with increased risk of quitting the cognitively demanding weight management program.”

action, like turning off the wireless router! But, as it turned out, we hadn’t fully quit. One message about a delayed project highlighted how seriously behind we really were. Another would remind us about the urgent need to raise some money. We weren’t sitting down to write so quietly. We had begun a series of mental, and noisy, trains of thought. We had acted like dieters exposing themselves to donuts every morning just before sitting down to think about other things.

But, as it turned out, we hadn’t fully quit. One message about a delayed project highlighted how seriously behind we really were. Another would remind us about the urgent need to raise some money. We weren’t sitting down to write so quietly. We had begun a series of mental, and noisy, trains of thought. We had acted like dieters exposing themselves to donuts every morning just before sitting down to think about other things.

For the third group, the researchers did something inspired. Tax professionals not only told the eligible graduates what they were eligible for, but they also actually filled out the forms with them. Simply telling people the exact benefits they were eligible for had no noticeable effect. But the help filling out the forms did have a remarkable effect: not only were they more likely to apply for financial aid, they were also 29 percent more likely to enroll in college.