Scarcity: Why Having Too Little Means So Much

by Sendhil Mullainathan

You are at a restaurant, having dinner with friends. The waiter describes the specials and then asks if you’d like to have a drink. You don’t typically order a cocktail but something on the menu catches your eye. How do you decide whether to order it? You may calculate how long before you’ll need to drive. You may wait to see if any of your friends order drinks. You may even wonder whether you’ll be splitting the bill. Or you may consider whether $10 is a reasonable price. What’s notable, though, is the dog that didn’t bark. There is one question you don’t ask yourself: “If I buy this drink, what will I not buy instead?” You do not ask this question because it almost seems silly. It feels as if you can buy this cocktail without giving up any other purchase. It feels as if there is no trade-off. Think about how remarkable this is. As a matter of basic accounting, of course there is a trade-off. No matter how rich you may be, you have a finite amount of money. If you spend $10 on anything, it is $10 less left for something else (even if that something else is the inheritance you leave your children). Those $10 must come from somewhere. But it often does not feel that way.