Scarcity: Why Having Too Little Means So Much

by Sendhil Mullainathan

Imagine you have spent the day shopping. 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 do. Imagine you have spent the day shopping. 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. This contradicts the standard economic model: the exchange rate between time and money ought to be constant. Yet here it varies dramatically. To make this precise, one can ask people to explicitly state what savings they would need in order to make the detour; one can calculate the value people are (implicitly) placing on their time. The results are striking. By v...