Scarcity: Why Having Too Little Means So Much

by Sendhil Mullainathan

Wasps can afford slack—to build sloppily—because their building material is cheap. The bees cannot because theirs is expensive.

The suitcases of the poor get full while they are still packing items they very much need.

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

The poor tunnel on those items and cannot help but wonder, Can I not rearrange and fit these in, too? Packing captures their attention

because the items in danger of being left behind matter. When the rich take a pause, the items left out by now are of low value.

So common is this phenomenon that food researchers have a name for it: they call these items cabinet castaways.

Slack frees us to indulge in castaways.

whim. With slack, we do not feel compelled to question how really useful an item will be. We do not ask, “Will I end up using that juicer enough to make it worthwhile?”

Since slack frees us from trade-offs, it licenses us to buy items that on their own, devoid of any other considerations, have some appeal. The result, of course, is inefficiency and waste.

Slack provides an easy way to avoid the burden of choosing. The only reason you must choose between the lecture and the movie is that your time

budget is tight.

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.

Even before the ill-advised purchase, he was not spending up to his full budget. The $200 will come from that leftover space. The financially tight Ben, on the other hand, has no slack. His $200 must come at the expense of something he had planned on, something he thought was essential.

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

Everyone from managers to movie producers suffers from the planning fallacy: we are all much too optimistic with our future plans.

Suppose you are not terribly busy.

The shortfall is nothing more than an annoyance.

Suppose, instead, that you are already heavily committed this week. Now this is more than annoying. You look at your schedule and you are overwhelmed.

For the less busy person, slack absorbs the error, thus minimizing the consequences. The busy person, on the other hand, cannot shrug it off so easily. Each added hour must come at the expense of something else. The same

mistake has bigger consequences. We just saw how slack can be inefficient. We buy items destined to become cabinet castaways, and we use time and money inefficiently. 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.

Our biases, a direct outcome of the workings of the brain, are not always responsive to the consequences.

Psychological biases often persist despite more extreme consequences.

If anything, scarcity will lead us to greater errors. The bandwidth tax places us in a position where we are prone to make mistakes.

With little slack, we have less room to fail. With compromised bandwidth, we are more likely to fail.

Scarcity does not just mean less room to fail. It also means a greater opportunity to fail.

Wealth transforms temptations into affordable luxuries. The same good can be a temptation when you have little but a mere frivolity when you have plenty.

Scarcity not only raises the costs of error; it also provides more opportunity to err, to make misguided choices. It is harder to do things right, because many items—time commitments for the busy, expenses for the poor—must be carefully made to fit into a constrained budget.

On a small budget, that iPod feels bulky, taking up a large fraction of what you will spend this month. As your budget grows, the iPod takes up less and less room. It becomes a smaller and smaller fraction of your disposable income—it gets more and more granular.

But with abundance, your choices on average get more and more granular. They stop straining your budget or your planning.

While our focus here is on the psychology that comes from scarcity, the effect of scarcity may be more than psychological; it can be a mathematical fact. Scarcity may create a logistically harder packing problem. The mind, challenged by the psychology that emerges from scarcity, may find itself needing to navigate a world that is computationally more complex.

The concept of packing brings this distinction into sharp focus. Physical limits and trade-offs are always there: suitcases, no matter how large, are of

a fixed size. But we do not experience them that way. A small suitcase makes us feel scarcity. We notice trade-offs; we feel we have too little space.

A big suitcase does not just permit more room; it removes the ...

We not only feel we have enough space; we do not even notice trade-offs. While actual limits and trade-offs are u...

Having slack allows us the feeling of abundance. Slack is not just inefficiency; it is a mental luxury.

Abundance does not just allow us to buy more goods. It affords us the luxury of packing poorly, the luxury of not having to think, as well as the luxury of not minding mistakes.

“I am happy to pay more,” Alex said, “but not 50 percent more!” Alex had made a clear choice: he decided he would suffer through ten or more minutes of heat and dirt in order to avoid paying a 50 percent surcharge.

“This amount of money means nothing to him!” In a way, of course, the driver was right: such small amounts shouldn’t mean much to well-off people. In a way, though, he was wrong. People act—at least at times—as if these small amounts mean a lot.

One item you have been shopping for is a DVD player. At the end of the day, you find yourself at a store that has the brand and model you want for $100. This is a good price but not the best you have seen today. One store—a thirty-minute detour on your way home—has it for $65. Do you buy the $100 DVD player and go home, or do you instead decide to take the detour to buy it for $65 at the other store? Think about what you would

One item you have been shopping for is a laptop. At the end of the day, you find yourself at a store that has the brand and model you want for $1,000. This is a good price but not the best you have seen today. One store—a thirty-minute detour on your way home—has it for $965. Do you buy the $1,000 laptop and go home, or do you instead decide to take the detour to buy it for $965 at the other store? Think about what you would do.

Both scenarios offer a chance to travel a half hour in order to save $35. And what you find is that most people choose to take the detour for the DVD player but not for the laptop.

car). This means our frugality has a perverse consequence. We pinch pennies on small items, yet we blow dollars on big ones. Our frugality is thereby largely wasted. We spend hours surfing the web to save $50

on a $150 pair of shoes. Yet we forgo a few hours’ search to save a couple of hundred dollars on a $20,000 car.

The $50 savings looked smaller and smaller as the background price got bigger and bigger; for a big-ticket item, it seemed hardly worth the effort.

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?

Weber found that the just noticeable difference is a constant fraction of the background amount. For weight, the constant is roughly one-thirtieth.

Similar effects in the perception of relative size, for example, often show up in our daily lives. Makers of laundry detergent realized long ago that people use more detergent when the cap is larger. Filling almost to the top is satisfying in a small cap. With a bigger cap, the fill line accounts for only a fraction of the available space, and because we are moved by relative rather than absolute amounts, that looks like very little.

Money, at least to some extent, is also judged relative to background. That’s why we care more about saving 40 percent on a $20 book than about saving 1 percent on a $1,000 refrigerator.

What this tells us is that expertise, a deeper understanding of the units, can alter perception. Musicians who are expert in time intervals have an internal metric—they do not rely on intuitive heuristic estimates of time lengths.

Scarcity also makes us experts—expert packers. Without the luxury of slack, we come to understand the value of each inch of space in our suitcases. The poor ought to know the value of a dollar, the busy the value of an hour, and dieters the value of a calorie.