Scarcity: Why Having Too Little Means So Much

by Sendhil Mullainathan

This study shows the intimate link between success and failure under scarcity. The contestants in Family Feud borrowed most when they were being most productive, when they were most engaged, when they really felt they needed more time. In a sense they were right to borrow: those extra seconds had a good chance of paying off. In another sense, they were wrong to borrow because that payoff did not compensate for the interest rate incurred.

It is worth noting that both the rich and the poor showed this pattern of borrowing when they were particularly productive and pressed.

For example, researchers have documented a bias toward the here and now, which they call hyperbolic discounting, or present bias. We overvalue immediate benefits at the expense of future ones: this is why it is hard to save, to go to the gym, or to do your taxes early.

These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself.

Scarcity leads us to borrow and pushes us deeper into scarcity.

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.

At the same time, he argues, busy people tend to neglect the important but not urgent tasks.

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. Their costs are immediate, loom large, and are easy to defer, and their benefits fall outside the tunnel. So they await a time when all urgent things are done.

Like keeping your office clean, it has benefits in the future, but it can always wait; it is not essential right now. The irony, of course, is that if a rag collector had the pushcart, he would have one less expense (the rent), and some of the other pressing expenses wouldn’t be as hard to deal with.

The pushcart is but one of many examples that poverty researchers can point to: even when returns are high, the poor, who need those returns more than anyone, fail to invest in ways that cannot be explained by weak financial institutions or a lack of skills.

These various behaviors share one obvious feature: people are behaving myopically. This leads to the most basic implication of tunneling. When we focus so intensely on making ends meet now, we plan less effectively for the future. Of course, studies have shown that planning is a problem for all people. But scarcity makes this problem a whole lot worse.

Thinking about the bills due next month, the other income sources you might anticipate, the new time commitments that might arise, all require some leftover cognitive capacity. With the mind focused on present scarcity, looking ahead risks becoming yet another casualty of the tunneling tax.

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.

A common theme stretches across many forms of the tunneling tax. Scarcity brings about behaviors that make us shortsighted. We ignore the (future) health cost of eating out when we are busy. We do not think about the implications of payi...

But what is remarkable in this account is that myopia is not a personal failure. Tunneling is not a personal trait.

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.

The magnitude is striking. By cutting back a little, within thirty days the vendor becomes debt free.

By becoming debt free, she doubles her income for the rest of her working days. A social program for the poor that doubled incomes in a month would be considered astonishing, too good to believe. And yet while every vendor has access to this “program,” they fail to use it.

But some scarcity—as with the vendors—is partly the result of human behavior. The vendor could be much less poor if she behaved differently.

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. People in scarcity traps, like the vendor, may inherit components of scarcity that are beyond their control.

Instead, Oscar is simply one step behind: he is working on last week’s assignments. Unlike Felix, for whom the material is vivid because he just heard the lecture, Oscar takes extra time reminding himself what the class did last week and trying to keep it apart from (yet not forget) this morning’s lecture. Oscar works harder but gets no more work done. Oscar is one step behind.

You can also be one step behind with money. Imagine now that Felix and Oscar are farmers, planting the same crop season after season. Felix uses his own savings to buy seed, fertilizer, and to cover living expenses until harvest time. Oscar borrows money for the same purposes.

This contrast between Felix and Oscar clarifies what we mean by a scarcity trap. Both face clear constraints, but Oscar is trapped into scarcity through his own behaviors. More generally, the scarcity trap is more than a shortage of physical resources. It is based on a misuse of those assets so that there is an effective shortage. It is constantly being one step behind, constantly paying off last month’s expenses.

The problem is not how much is being spent but how it is spent. The perpetual borrower is spending less on what he wants; a lot of his income is going to paying off loans. The person who is perpetually behind is spending less time on getting things done; a lot of his time is going to playing catch-up.

The prevailing wisdom in the village was that jewel loans were used in emergencies; they were a “last-minute” resort. And the moneylender was always there. He had flexible hours. You could knock on his door on weekends and get a loan, whereas the bank was only open during the week and part of Saturday.

Why were people

reacting to these events only at the last minute? Why were they treating routine, scheduled events as if they were shocks?

Surely you must have experienced this before. When you are focused on making ends meet this week, you are not dealing with the details of what next week holds. And then, when next week arrives, some things it ...

At work, after frantically finishing one project, you are stunned to realize you have only two days left to work on another. Only recently that deadline was weeks away. What you always “knew” is now a rude surprise. 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.

With many balls in the air, we focus on the ball that is

about to drop when we tunnel. Sometimes we solve the problem for good. More often than not, we catch the ball just in time, only to toss it back in the air again.

Juggling is why predictable events are treat...

When those balls “suddenly” descend, they are news to the tunneled juggler, a shock if you will.

As disinterested parties, we can see school fees looming. To the poor juggling their finances, they only become real when they are imminent.

The legacy of previous choices makes each new one even more challenging. 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.

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. At the same time, this is when farmers have little to do other than wait for the crops to be ready.

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. These two features—being one step behind and juggling—define the scarcity trap.

Getting out of a scarcity trap first requires formulating a plan, something the scarcity mindset does not easily accommodate. Making a plan is important but not urgent, exactly the sort of thing that tunneling leads us to neglect.

You would love to stop playing catch-up, but you have too much to do to figure out how. Right now you must make your rent payment. Right now you must meet that project deadline. Long-term planning clearly falls outside the tunnel.

And, of course, perhaps most important, future planning requires bandwidth, which scarcity taxes heavily.

Is she taking a big risk? Thoughts like these tug at her mind. They create, as we have seen, a very real bandwidth tax. It is hard under those circumstances to focus on formulating a plan for escaping her scarcity trap.

To make matters a lot worse, the actual plan needed is significantly more complicated than the simple

one we sk...

Juggling and the scarcity trap make for a messy patchwork of obligations. Unraveling the best way out is no trivial challenge.

Finally, even if a plan were formulated, implementation can prove difficult.

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 con...

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 ...

One more obligation, and you are back into the scarcity trap. All this is complica...