Scarcity: Why Having Too Little Means So Much

by Sendhil Mullainathan

Across a variety of cognitive tests, they find that people simply perform worse when they are dieting. And when psychologists interview the respondents, they find a common pattern: concerns related to dieting are top of mind for these dieters and interfere with their performance.

Something similar happens with the lonely.

And now the lonely did significantly less well. They were less effective at overriding their natural urge, less effective at tuning out the right ear and listening to the left. The lonely in other words showed impaired bandwidth—in this case, lesser executive control.

In fact, when they placed subjects in the scanner, they saw that making people think they would be lonely reduced activation of the executive control areas of the brain.

Finally, in a study looking at impulse control, when subjects who anticipated being lonely were given the opportunity to taste chocolate-chip cookies, they ate roughly twice as many. Consistent with this, research on the diets of older adults has found that those who feel lonely in their daily lives have a substantially higher consumption of fatty foods.

SCARCITY AND WORRY Of course, scarcity is not the only thing that can tax bandwidth. Imagine you had a fight with your spouse one morning. You might not be very productive at work. You might look and act “dumber” that day. You might not hold your tongue when you should. Part of your bandwidth is being used up fussing, fretting, and maybe fuming over the fight. You, too, would have less brain left for everything else. Under this view, everyone has concerns and needs that can tax the mind. What, then, is so special about scarcity? Scarcity, by its nature, is a clustering of several important concerns.

Unlike a marital spat that can happen anywhere and to anyone, preoccupations with money and with time cluster around the poor and the busy, and they rarely let go. The poor must contend with persistent monetary concerns. The busy must contend with persistent time concerns. Scarcity predictably creates an additional load on top of all their other concerns.

There is, even in our data, some reason to think that stress plays some role. Predictably, experiencing scarcity can be stressful. In the harvest study, for example, we found that postharvest farmers were less stressed than they were before harvest. We also found sizable reductions in heart rate variability, a frequently used measure of stress.

At the same time, stress is unlikely to be the primary driver of many of the effects we have observed. Some of the most important effects had to do with scarcity taxing what we have come to call bandwidth. Stress, in contrast, does not have these predictable effects. Some studies find that stress heightens working memory. Still other studies have found mixed evidence, including some indication that executive control might improve during periods of stress. Of course, the chronic effects of stress are still different, but the effects of scarcity that we have studied are immediate: in the mall study, simply reminding people about their money had an almost instantaneous effect on their mental capacity. In addition, we have shown a particular pattern of improved performance (the focus dividend) and diminished performance (the bandwidth tax), a pattern that anxiety and stress alone cannot explain.

The size of these effects suggests a substantial influence of the bandwidth tax on a full array of behaviors, even those like patience, tolerance, attention, and dedication that usually fall under the umbrella of “personality” or “talent.” So much of what we attribute to talent or personality is predicated on cognitive capacity and executive control. The restaurant manager looks to all the usual places to explain his employees’ behavior—lack of skill, no motivation, or insufficient education. And a taxed bandwidth can look like any of these. The harried sales manager, when she snaps at her daughter, looks like a bad parent. The financially strapped student who misses some easy questions looks incapable or lazy. But these people are not unskilled or uncaring, just heavily taxed. The problem is not the person but the context of scarcity.

Recall the metaphor of the computer slowed down by programs open in the background. Imagine you are sitting at that computer unaware of these other programs. As your browser crawls from page to page, you might draw the wrong conclusion. What a slow computer, you might think, confusing the processor loaded down by other tasks for one that is inherently slow. Similarly, it is easy to confuse a mind loaded by scarcity for one that is inherently less capable.

Scarcity doesn’t just lead us to overborrow or to fail to invest. It leaves us handicapped in other aspects of our lives. It makes us dumber. It makes us more impulsive. We must get by with less mind available, with less fluid intelligence and with diminished executive control—making life that much harder.

Both the large and small suitcase impose limits: no matter the size of the suitcase, you obviously cannot fit every possibly useful item. Both suitcases require a choice of what to pack and what to leave out. Yet psychologically only the small suitcase really feels like a problem. The large suitcase is packed casually. The small suitcase is packed carefully and intently. This is a metaphor for many other problems in life. We have a time suitcase that must fit our work, leisure, and family time. We have a money suitcase into which we must fit our housing, clothing, and all our expenses. Some of us even have a self-imposed calorie suitcase into which we must fit all our meals. As this metaphor illustrates, when scarcity focuses us, it also changes how we pack. It changes how we manage each dollar, each hour, or each calorie. It also leaves us with differently packed suitcases. The big suitcase is packed carelessly, with room to spare. The small suitcase is packed carefully and tightly.

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.

Sometimes, though, we do recognize trade-offs. Picture yourself on a diet and contemplating the same cocktail. Even though the $10 price tag may not lead you to consider trade-offs, the “calorie price tag” might. Suddenly, those extra three hundred calories must be accounted for. Drink that cocktail and something else must be given up. Is it worth forgoing dessert? Or the bagel tomorrow morning? Diets make us calorie accountants. The books must balance. We recognize that having one thing means not having something else. We engage in what we call trade-off thinking.

Scarcity forces trade-off thinking. All those unmet needs capture our attention and become top of mind. When we are tight on cash, we are highly attentive to all the bills that must be paid. So when we consider buying something else, all the bills are there, making the trade-off apparent. When we are working on a tight deadline, all the things we must get done are foremost on our mind. So when we think about spending an hour on anything else, the trade-offs again are salient. When time or money is not so tight, we are not as focused and the trade-off is less apparent.

Only some people also reported trade-off thinking, volunteering such thoughts as, “What do I have to give up to buy it?” The people who asked themselves these questions were disproportionately poor. The poor reported trade-off thinking almost twice as often as the better off (75 percent vs. 40 percent). This was a striking difference, especially since the income cutoff we used was at best a crude proxy for scarcity. Some of those whom we classified as well off might well have been experiencing scarcity—for example, some were surely burdened by mortgage payments, credit card debt, college loans, or large families.

SLACK The packing metaphor illustrates why scarcity creates trade-off thinking. We pack big suitcases loosely. Not every nook and cranny is filled. There is space left unused here and there. We call this space slack—the part of our budget that is left untapped because of the way we pack.

Imagine that after having packed a large suitcase, you want to add an item. You can just throw it in. No item needs to come out. You do not need to rearrange the contents because the suitcase had extra room to begin with—it had slack. But with a smaller suitcase, adding something necessitates taking something out. Slack is what allows us to feel there is no trade-off. Where does the money for the $10 cocktail come from? If you are well off, the cocktail will feel like it comes at the expense of nothing because in a way it does. Slack picks up the tab. Slack frees us from making trade-offs.

Many people enjoy slack in money as well. One study showed that high-income shoppers are twice as likely to report that they do not track their spending because they “don’t have to; [they] make enough money.”

We, however, do not use slack to refer to the sort of room deliberately created to deal with the unexpected, the kind that’s actually carefully budgeted. You might leave room in the suitcase for later eventualities, say, for shopping while in Rome. But notice, that’s intended slack, the kind you allocate carefully, as you would for any other item.

Slack the way we use it is not space deliberately left unused but, rather, the by-product of packing under abundance.

Why do bees create such precise structures and the wasps such messy ones? Scarcity. The wasps build with material that is abundant: mud. The bees build with material that is scarce: wax. The bees’ wax—like space in a tight suitcase or dollars during hard times—must be conserved. Building badly means wasting wax, which is an incentive to be efficient, to pack well. The wasps, on the other hand, have abundant material, plenty of mud to waste. Wasps can afford slack—to build sloppily—because their building material is cheap. The bees cannot because theirs is expensive.

Unused room in the suitcases of the rich comes at the expense of items of little consequence. The suitcases of the poor get full while they are still packing items they very much need. Space is at a premium in the small suitcase, whereas its limits matter less when suitcases are big. Economists call this diminishing marginal utility: the more you have, the less each additional item is worth to you. There is an almost economic logic to all this: the poor have less slack because they can afford less of it.

There is also a deep psychological dynamic at work. When the poor and the rich take a pause from packing, they each have items left outside their suitcase. Because those items that don’t fit have a great deal of value for the poor, the items capture their anxious attention. 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. They could be added, but they could just as well be left out. The rich leave slack because they are less engaged in packing.

Kitchen cabinets across the United States are full of soups, jams, and canned food that have not been used for ages. So common is this phenomenon that food researchers have a name for it: they call these items cabinet castaways. Some estimates suggest that one in ten items bought in the grocery store is destined to become a cabinet castaway.

Slack frees us to indulge in castaways. It allows us to buy an exotic canned soup or a remote-controlled model airplane on a 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?” or “Will I really ever wear that bold pair of shoes to warrant buying them instead of a pair of pants?” Because there is no trade-off, we simply think, “Why not?” 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. When we have plenty of time, we loll around, and time evaporates. Minutes here and there add up to hours frittered away. We end up getting six hours of good use out of a sixteen-hour day.

You plan to spend the evening in the library working on a short paper due the following day. As you walk across campus, you discover that an author you have always admired is about to give a public lecture and that—in another hall—they are about to screen a foreign movie that you have been wanting to see. Do you proceed to the library anyway or go to the lecture or to the movie instead? Given only one appealing alternative, the lecture, 60 percent stuck with the library. But given two appealing alternatives, even more people (80 percent) chose the library. This looks like a peculiar outcome: people are given more attractive options, yet, they are less likely to choose any of them. It happens because choice is hard. When the choice is between the lecture and the library, you can decide which is more important that day—studying or leisure. But when there are two leisure activities, you have one more choice: which is the leisure activity that’s right for you? Faced with this additional choice, people simply say, “Forget it. I’ll just stick with the library.” They avoid the burden of choosing by sticking with the original plan, in effect choosing not to choose. 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. If you had slack, you could do both. When you’re shopping for clothes and see two things you like, a tight budget forces you to choose.

Contrary to Milton Friedman’s ideal of “free to choose,” slack leaves us free not to choose.

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

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.

If anything, scarcity will lead us to greater errors. The bandwidth tax places us in a position where we are prone to make mistakes. The busy person is likely to commit an even bigger planning error; after all, he is likely still needing to attend to his last project and is more distracted and overwhelmed—a surefire way to misplan. With compromised bandwidth, we are more likely to give in to our impulses, more likely to cave in to temptations. With little slack, we have less room to fail. With compromised bandwidth, we are more likely to fail.

Here, buying the leather jacket is a mistake for Ben but not for Alex. This, after all, is what abundance affords us. It allows us to buy more things. 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. The dieter must avoid the same cookie that the nondieter eats thoughtlessly. The busy must avoid distractions—having a drink with friends or watching mindless TV—that the nonbusy enjoy without thinking.

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.

Imagine that the two of us—Sendhil and Eldar—are invited to a picnic. Sendhil has to bring fruit for a fruit salad, and Eldar’s job is to bring the jellybeans. Sendhil must carefully consider how best to pack: one watermelon and much of the space in his bag is taken. And even the pineapple makes it hard to fit much else. Maybe he can align some bananas around the edges or fit a few grapes or strawberries in between the apples and the pears. There are nontrivial logistics to his packing problem: finding the best arrangement is a challenge. Contrast this with Eldar’s much simpler task. He simply pours in some watermelon-flavored jellybeans and some orange. He shakes his bag to let the pile settle, then pours in a few other flavors. Eldar may also have to make some trade-offs; he may not be able to fit all the flavors he wants. But once he has made his choices, his packing is inherently easier. No ingenuity is required to pack the jellybeans. What distinguishes the two tasks is granularity. The fruit are bulky items, whereas the jellybeans are small, almost like grains of sand. The complexity of packing gets easier as the items get more granular. In life, do you pack grains or bulk...

All this suggests an additional layer. 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...

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. As Henry David Thoreau observed, “A man is rich in proportion to the number of things he can afford to let alone.”

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...

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.

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?

How much additional weight was needed for a person to detect it? What was the “just noticeable difference”? Weber found that the just noticeable difference is a constant fraction of the background amount. For weight, the constant is roughly one-thirtieth.

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. So people fill a little more, and more detergent is sold.

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.

While relative perception is inherently part of how the mind processes information, experience and expertise allow us to transcend it.

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. Studies have shown that more experienced bartenders are better at pouring and are less likely to be affected by bottle height when asked to pour a certain amount.

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. Marketing researchers have studied this expertise in a very specific way. They stop shoppers exiting a supermarket for a quick survey. They take the shoppers’ receipts and ask questions like, “How much was the Crest toothpaste you just bought?” Affluent shoppers do not do well on this quiz. “The price of the Crest toothpaste? Something like three dollars? Maybe five?” Most don’t even know how much they spent in total, the size of the bill they had just paid minutes before. But the lower-income shoppers do. They are more accurate in knowing both how much they spent and the prices of the items they bought. We found this in a study of our own, which we devised carefully so as to separate knowledge from frequency of experience. We asked commuters in Boston the fare at which the taximeter starts. The rich gave the correct answer only 12 percent of the time; the less affluent were correct three times as often. This despite the fact that the rich take taxis much more frequently. Knowing prices often involves more than just reading the label. It requires vigilance since what you see is often not what you pay.

Low-income consumers are savvier in other ways as well. When you shop at a supermarket—say for a bag of chips or a can of tuna—you naturally assume that buying the bigger package must be cheaper per unit and thus will save you money. As it turns out, you often would be wrong. The bigger package can cost you more per unit; there might be a “quantity surcharge.” One survey found that 25 percent of brands that offered more than one size imposed some form of quantity surcharge. These surcharges are not errors. Consumer Reports has called them a “sneaky consumer product trick.” The trick works best on consumers who don’t pay much attention to prices, who just assume the bigger package will be the better deal. (How often have you done this?) One study examined which supermarkets practice this “trick” and found just what our discussion so far would have predicted: supermarkets in low-income neighborhoods are the least likely to have quantity surcharges.

Think of how striking this is. The poor in these studies behave more “rationally.” They are closer in this case to the rational economic ideal, closer to homo economicus. This not only tells us something about poverty; it also tells us something about behavioral economics. That money is valued in relative terms is considered a classic finding in behavioral economics: presumably something that characterizes everyone’s thinking. Yet here we see that scarcity overturns—or at the very least waters down—this classic finding. In fact, scarcity alters many other findings as well.

What was $70, really? It’s hard to make sense of what a dollar is truly worth. Sendhil had developed a technique for decisions such as this. At the time, his primary food (really his only food) was bean burritos at Taco Bell. Though he did not understand dollars very well, he understood burritos. So he decided to put everything on a bean burrito scale. Instead of asking whether he would rather have the Walkman or $70, he could ask himself whether he wanted the Walkman or seventy-eight bean burritos. The burritos seemed more tangible, more real than dollars.

If you do not know what you are giving up, it is hard to figure out what something costs and whether it’s worth it. Slack, and the absence of trade-offs, means we have no intuitive, easy way of valuing things.