Book-Blogging – Scarcity, by Sendhil Mullainathan and Eldar Shafir

Scarcity coverAs I’m writing this, it’s the middle of the holiday season, which means that you’re probably a little dumber right now. A bit more scatterbrained. Likely reaching for that extra holiday cookie or for one more egg nog than you really need.

Upon reflection, you’d probably admit that this is at least partly because you have a lot on your mind; more last-minute gifts to wrap than time; and, after purchasing a plane ticket home, buying gifts, and (over-)indulging with friends, a much thinner wallet. You’re stressed out.

In the parlance of Sendhil Mullainathan and Eldar Shafir, you’re experiencing “scarcity” – you’re “bandwidth-taxed.” In their excellent read, Scarcity, the authors seamlessly weave real-world examples with clarifying experiments to show just how pernicious scarcity can be. I highly recommend picking up the book; it will change the way you look at your finances and your time. And hopefully it will change the way you think about how poorly-aligned our society’s understanding of individuals in poverty is; how a reimagining of anti-poverty policy could make everyone – but especially the poor – better off.

As Mullainathan and Shafir point out, scarcity isn’t all bad; as anyone who has written a last-minute paper or crammed for a test knows, a time constraint provides a useful “focus dividend” – it gets you to get stuff done[1].

But the costs of scarcity often outweigh its benefits. A packed schedule or a bank account near zero (or below) cause tunneling: focusing on the most pressing issue, often at the cost of the long term. You take out a payday loan to pay the late bill, even if it leads to usurious interest rates you’ll have an even harder time paying off next month; all your meetings start 10 minutes late, and none of them are all that productive; you choke on that first date you really wanted to go well.

It’s not just your free time or wallet that are depleted, though; it’s your bandwidth – a wonky way of describing “brainpower.” The correct understanding of bandwidth, Mullainathan and Shafir argue, is akin to a gas tank; you use it up over time, and when you’re working on a thoughtful task, you use it up faster than when you’re doing something mindless[2].

And when your bandwidth is taxed, you are dumber. Literally. In one of Mullainathan’s and Shafir’s studies, mall-goers –some well off, others poorer – were asked about a hypothetical decision to spend either $150 or $1,500 to fix some short-term car trouble, and then were given a test of Raven’s Progressive Matrices to judge fluid intelligence.[3] When given the $150 hypothetical, the rich and poor looked equally intelligent; when given the $1,500 hypothetical, the poor did significantly worse. As the authors note, this was significant both in the statistical sense and in the real-world sense:

 Our study revealed that simply raising monetary concerns for the poor erodes cognitive performance even more than being seriously sleep deprived… our effects correspond to between 13 and 14 IQ points. By most commonly used descriptive classifications of IQ, 13 points can move you from the category of “average” to one labeled “superior” intelligence.

Thinking about money issues temporarily made people less intelligent, by nearly an entire standard deviation. Mullainathan and Shafir found similar effects to executive control:

 The same farmer fared worse on fluid intelligence and executive control when he was poor (preharvest) than when he was rich (postharvest). Much like the subjects at the mall, the same person looked less intelligent and more impulsive when he was poor… The postharvest farmers got about 25 percent more items correct on Raven’s. Put in IQ terms, as in the earlier mall study, this would correspond to about 9 or 10 IQ points

This is why, the authors note, “scarcity creates its own trap.” Tunneling, and the juggling it forces, distorts decision-making:

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. You fail to make these small investments even when the future benefits can be substantial.

You make dumb long-term decisions because you only think about the most immediate and pressing things to do.

A proper understanding of, and reckoning with, these ideas leads to significant individual, social, and political changes.

For individuals, it may mean scheduling high-bandwidth tasks earlier in the day, or at least not scheduling all high-bandwidth tasks back-to-back; perhaps you should put mindless tasks – doing expenses, maybe, or clicking through low-priority emails – after something that requires your full attention.  And it means trying to turn all of the hard, repetitive decisions you have to make into one-time decisions; you can either have to say no to the chocolate bar every time you open the pantry, or just say no to it once at the grocery store. Same deal with habits: if you go on a run or to the gym on a consistent basis, choosing to go today will be, well, less of a choice.

As a society, these ideas should lead us away from viewing the poverty problem as a moral one – thinking that those in poverty are lazy or dumb or what have you – to a practical one. We know – or, more accurately, have a strong factual basis to believe – that a bandwidth-taxed individual is liable to make worse decisions, and that those in poverty are, by definition, bandwidth-taxed individuals. Properly considered, the research should lead to a greater level of empathy; we all know what it feels like to be bandwidth taxed – but most of us are fortunate enough to not feel like that all the time. Many aren’t, though.

If you view poverty through this lens, it’s easy to see how specific policy changes could help increase bandwidth and reduce scarcity. One stark example: payday loans[4]. Mullainathan and Shafir put it better than I can:

Many workers, as we saw in chapter 5, resort to payday loans. Yet it’s worth observing that a payday loan is often simply a loan against work that has already been done. The worker who takes a payday loan halfway through the pay cycle has already earned half her paycheck. The need for a loan is largely due to the fact that payment happens with a delay. Why should an employer have workers taking these loans, potentially falling into scarcity traps, taxing bandwidth, and resulting in lower productivity, especially when the employer can himself give pay advances at low cost? How valuable would it be for employers to improve productivity by offering the right financial products and creating bandwidth?

This is a pretty nonideological solution to a politically-fraught issue. There are costs to it, sure, but as the authors point out, it’s easy to see how they could be outweighed by productivity benefits.

Finally, policymakers and policy wonks need to learn how to craft programs that take the already-limited bandwidth of the poor into account:

We treat education as if it were the least invasive solution, an unadulterated good. But with limited bandwidth, this is just not true. While education is undoubtedly a good thing, we treat it as if it comes with no price tag for the poor. But in fact, bandwidth comes at a high cost: either the person will not focus, and our effort will have been in vain, or he will focus, but then there is a bandwidth tax to pay. When the person actually focuses on the training or the incentives, what is he not focusing on? Is that added class really worth what little quality time he managed to spend reading or with his children? There are hidden costs to taxing bandwidth.[5]

Scarcity is a problem we all face, in one form or another. And we face it together, too, as a society. Read this book and you’ll have a much better understanding of it.



[1] Though, in those cases, neither the paper nor the studying is as good as it would be sans procrastination

[2] You may recognize this idea as “ego depletion,” Roy Baumeister’s model for how willpower is reduced when people are faced with difficult decisions. In this model, willpower is a muscle that can be used, depleted, replenished (with a sugary treat, say), and strengthened over time

[3] You know – and likely loathe – these:

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[4] Speaking of which, the John Oliver segment on payday loans is excellent

[5] As an aside, if you’ve worked in international development in any sector, you recognize how difficult education/”sensitization” (for those in east Africa) is. Add bandwidth to the long list of reasons why.

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