Scarcity: Why Having Too Little Means So Much

by Sendhil Mullainathan

we don’t make a conscious decision to have a messy life. Instead, the messy surroundings just “happen” while we attend to what’s urgent. The messy home or office is the result of a sequence of small choices, mostly passive, effortless, and unnoticed.

Putting off an important but not urgent activity is like borrowing. You gain time today by not doing it. But you incur a cost in the future: you will need to find time (possibly more time) to do it at some later point.

Scarcity, and tunneling in particular, leads you to put off important but not urgent things—cleaning your office, getting a colonoscopy, writing a will—that are easy to neglect.

Scarcity kept them tied to the present, unable to benefit from a glimpse of what the future might hold.

Tunnels limit everyone’s vision.

The vendor’s condition is an example of what we will call a scarcity trap: a situation where a person’s behavior contributes to her scarcity.

Play this out over time and it leads to what we call juggling: the constant move from one pressing task to the next. Juggling is a logical consequence of tunneling. When we tunnel, we “solve” problems locally and temporarily. We do what we can in the present, but this creates new problems in the future. The bill today generates a loan, which becomes another (slightly bigger) bill in the future.

Juggling is why predictable events are treated like shocks. When you juggle, you tunnel on the balls that are about to drop, and you neglect those high in the air.

These two features—being one step behind and juggling—define the scarcity trap. Life in the scarcity trap is about having even less than you could have.

future planning requires bandwidth, which scarcity taxes heavily.

Following through on a plan requires bandwidth and cognitive control, and scarcity leaves us with less of both.

What matters most is the slack available to weather each new shock. This is why instability can have such an impact.

To be free from a scarcity trap, it is not enough to have more resources than desires on average. It is as important to have enough slack (or some other mechanism) for handling the big shocks that may come one’s way at any moment.

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.

The scarcity mindset, in contrast, is a contextual outcome, more open to remedies. Rather than a personal trait, it is the outcome of environmental conditions brought on by scarcity itself, conditions that can often be managed.

Our data suggest causality runs at least as strongly in the other direction: that poverty—the scarcity mindset—causes failure.

Being a good parent requires many things. But most of all it requires freedom of mind. That is one luxury the poor do not have.

The poor are not just short on cash. They are also short on bandwidth.

so many of our behaviors, not just parenting, rely on bandwidth. For example, an overtaxed bandwidth means a greater propensity to forget.

Certainly no one forgets to take painkillers: the pain is a constant reminder. Diseases such as diabetes, though, are “silent”; their consequences are not immediately felt. There is nothing to remind a person with an overburdened bandwidth to take those medications.

many of the “failures” surrounding poverty can be understood through the bandwidth tax.

Insufficient sleep further compromises bandwidth.

Disease, noise, and malnutrition are no longer simply sources of misery but also additional forms of bandwidth taxation.

When we study poverty, we tend to focus on material conditions, but we also ought to look at psychological conditions—at bandwidth.

To understand the poor, we must recognize that they focus and they tunnel and they make mistakes; that they lack not only money but also bandwidth.

But why not look at the design of the cockpit rather than the workings of the pilot? Why not look at the structure of the programs rather than the failings of the clients? If we accept that pilots can fail and that cockpits need to be wisely structured so as to inhibit those failures, why can we not do the same with the poor? Why not design programs structured to be more fault tolerant?

A rigid curriculum—each class building on the previous—is not a forgiving setting for students whose bandwidth is overloaded.

For a limit to affect behavior it must enter the tunnel.

Rewards and penalties in some distant future are less effective for those who tunnel.

For an incentive to work, people must see it. And most incentives, unless designed well, risk falling outside the tunnel, rendering them invisible and ineffective.

When the person actually focuses on the training or the incentives, what is he not focusing on? Is that added class really worth what little quality time he managed to spend reading or with his children? There are hidden costs to taxing bandwidth.

Schoar collected the best rules of thumb and designed a different “financial education” class based on them. Her class was shorter and much easier to grasp. It used a lot less bandwidth, and this showed up in the data. Attendance was much higher, and at the end of the rules-of-thumb class, clients were ecstatic and asking for more; many even said they would pay for another class themselves. Normally, you have to cajole people to come back to a class on financial education.

economizing on bandwidth can yield high returns.

There are, besides child care, many examples from around the world of how bandwidth might be built. The first comes from finance. Recall that a great deal of juggling among the poor comes from fighting everyday fires. If we can help people fight these fires, we will create new bandwidth.

What is inherent to these fires is that they are acute—there is an immediate need for cash. The need is not for big investments; it is for small amounts—to buy a school uniform, for example.

This points to the great potential value in finding ways to buffer against such shocks. One way is to create financial products that help the poor build savings slack. We could do that using some of the techniques for managing scarcity we discussed 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.

When the intangible future comes face to face with the palpable present, slack feels like a luxury.

Leverage also had an effect because of the psychology of scarcity. Companies became “lean and mean” in part for the same reason deadlines produce greater productivity, and low-income passengers know the price of cabs. Being a hypervigilant manager who keeps costs low can require a great deal of cognitive effort. You must negotiate diligently with suppliers and scrutinize every line item to decide if an expense is necessary. This kind of focus is easier to come by under scarcity and harder to come by under abundance. Even private companies, where managers are spending their own money, start acting “fat” when awash in cash.

Roger Bohn and Ramchandran Jaikumar describe it, 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. Put simply, time is spent on fighting the immediate fire, with new fires constantly popping up because nothing is being done to prevent them.

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

Understanding the logic of scarcity and slack can reduce the chance that we enter a firefighting trap.

One solution, at least in organizations, is to explicitly manage and ensure the availability of slack.

In a way, none of this should be surprising. Just as we get physically exhausted and need to rest, we also get mentally depleted and need to recover.

Studies have repeatedly shown that when workers sleep less they become less motivated, make more errors, and zone out more often.

all of these mistakes—from firefighting to failing to cultivate bandwidth—are individual problems, to which any person can fall prey. But organizations can magnify the problem. When one member of a team begins to fall behind or enters a firefighting mode, this can contribute to the scarcity felt by others.

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.

Impulses, rather than reminders, are also easy to bring to the tunnel. Supermarkets have long understood this.

Keep the Change (which has been criticized on other grounds, including low interest and high fees) does one thing very well: it gets people to save not by trying to curb their impulses to spend but by harnessing these impulses.

You only need to sign up for the gym once, whereas going regularly requires vigilance—doing the right thing again and again.

whenever possible, convert vigilant behaviors into one-time actions.