Scarcity: Why Having Too Little Means So Much, by Sendhil Mullainathan and Eldar Shafir

Victoria Bateman counts the costs when there’s not enough to go around

九月 12, 2013

Why do we often manage to?do our most successful work at the last minute? Why is it so hard to diet? Why do so many people end up in debt to unscrupulous moneylenders? Why do the loneliest find it so tricky to?make friends? According to Sendhil Mullainathan, a Harvard University economist, and Eldar Shafir, a Princeton University psychologist, these seemingly disparate questions have one thing in common: scarcity. From having too little time relative to what needs to be done to too little money relative to outgoings, too few friends relative to social needs or feeling that we have too little food relative to what we would like to eat, scarcity is everywhere. By identifying this “common chord”, this engagingly readable book suggests that many of life’s age-old problems have surprisingly similar solutions.

The study of scarcity is familiar to economists – indeed, economics is precisely about how individuals, businesses and governments make choices when their “resources” are limited. However, Scarcity digs much deeper. Mullainathan and Shafir argue that not only can?having too little make us less “happy”, it can also change the way we think, reducing our mental capacities – or what the?authors call our “mental bandwidth”.

Scarcity absorbs the mind: when we lack money, time, food or friends, it consumes us, making it difficult to think of anything else. How are we going to pay the overdue rent? How are we going to meet that deadline? Are we going to spend the rest of our lives alone? Although our preoccupation with a particular concern may help to elicit a solution, it also comes with a major negative: it deprives us of mental energy for everything else. While managing a?pressing problem, we are less likely to exercise self-control in other aspects of our lives (such as snapping at partners or giving in to unhealthy snacks). We become more impulsive and stop thinking about the long term, neglecting our relationships, health and savings. The result is that we make the wrong choices – mistakes that we end up having to?pay for in the longer term.

Acknowledging that scarcity “makes us dumber”, is, the book argues, central to explaining why the lonely stay lonely, why diets fail, why we always seem to be behind with deadlines, and (of particular interest to the authors) why the poor stay poor. It is not an inherent personal deficiency in motivation, energy or self-control that causes poverty: rather it is the other way around. Continual worry about finances means that, once poor, we are more likely to?lose concentration at work, become more forgetful with medication, snap at our children and turn to short-term moneylenders, despite the obvious pitfalls. The result is a vicious circle from which it is hard to escape. By contrast, those in abundance not only have “more”, they also have greater mental bandwidth, making them appear “cleverer” and providing them with the slack to avoid the negative consequences that come from giving in to life’s temptations.

The analogy used by Mullainathan and Shafir will be fresh in all our minds: packing for a holiday. If you have fewer resources – a?smaller suitcase – you are more likely to make mistakes, and any mistake you do make (any vital item left out of the suitcase) is?likely to be costly. (Having recently switched to hand-luggage-only travel to cut time at?airports, I can see their point.) However, those with more resources – a larger suitcase – are?less likely to make mistakes; moreover, if they do, it is unlikely to be costly. Forgetting that fourth pair of shoes is, after all, unlikely to be disastrous.

According to the authors, the solution to scarcity is to better manage our mental bandwidth. Managing time is not enough. Furthermore, given that we are all?prone to a loss of bandwidth at?some point, we need to put in place systems that minimise the temptations and costs that can come with it. For example, setting long deadlines for students is “a?recipe for trouble”, they note, as most start to work only once the deadline is looming; hence, shorter deadlines or a series of deadlines can make the best of the brain’s inherent deficiencies. While giving people too much slack is a?problem, so is giving too little. Working long hours and cutting too much slack from organisations can be disastrous for long-term performance; the most pressing problems may be dealt with, but the less urgent (and potentially most structurally transformative) ones are kicked into the long grass.

Scarcity makes numerous suggestions about helping those in?poverty: changes to the benefits system (replacing lifetime limits, which only bite when it is too late, with a series of more frequent limits); greater help with childcare (concerns about which can occupy a great deal of mental bandwidth); carefully designed financial products that aid saving in good times to help boost income and avoid the need to?borrow at others (seasonal work can make income very volatile); and designing training programmes in a way that builds in greater slack for those who miss one or two sessions (reducing dropouts). According to the authors, although such changes are individually small, they can add up to a powerful effect by making the best use of bandwidth.

However, perhaps the most significant all-round solution they?propose for the problem of scarcity (in whatever form) is as follows: making better use of periods of abundance. Our lives frequently alternate between abundance (more cash or more free time than usual) and pressure. The authors suggest that by making better use of abundance, we will be in a better position when scarcity arrives. Of course, the reader may, like myself, feel that this is much easier said than done. After a frantic period, we often feel too run ragged to think ahead to the next deadline; we simply need to recover. However, when you think about it, by making just a marginal improvement to our use of time in each period of “abundance”, we will, after a few runs of the cycle, find we are able to reduce the pressure in the lean period, making life that much more manageable. Small changes can make a big difference.

While Scarcity is certainly original from an academic perspective and is receiving much praise from fellow economists, non-economists may be tempted to say it does little more than state the obvious. Aren’t we all too aware of the consuming nature of financial stress, looming deadlines and the negative effect they have on our lives? However, what is new here is the authors’ unified approach to numerous problems. Were we to stand up and take action, the impact could be transformative.

Following a long period in which economists’ approaches to?the world have become ever more abstract, mathematical and unrealistic, this is a much-needed dose of reality. After turning to psychologists, let’s wait and see if?economists now also have the sense to learn from other disciplines in order to get themselves back on track following the?clear failures revealed by the global financial crisis.

The authors

“I spend an inordinate amount of time on my barista skills, my basketball skills and my hermit skills. I’m pretty good at the first, so-so at the second and just superb at the third,” says Sendhil Mullainathan, professor of economics at Harvard University.

He was “born in a rural part of Tamil Nadu, India. I lived there until I was seven and moved to Los Angeles where I stayed until college”. He now lives alone in Cambridge, Massachusetts. “No pets unless you count my MacBook Air, which keeps me company and gets plenty of my food, albeit through inadvertent spills.”

Mullainathan observes: “The streets of Boston and Cambridge were drawn to maximise confusion. For example, there are streets that literally make a 90-degree turn and continue along their merry way. There have been times when the best directions I could give someone was ‘Wait there. I’ll drive out and you can follow my car’. And I’m not alone.”

There are, however, compensations. “The ice cream is good, very good. As a connoisseur, I can guarantee you that two of the three or four best ice cream shops in the US are in Boston.”

Of his early years, Mullainathan says: “‘Studious child’ is a generous way of putting it. My classmates used words that were closer to ‘geek’ and ‘nerd’. As a child I only read and watched TV - a lot of both. I’m lucky to have this job because frankly I’m not sure I’d be good at anything else.”

Asked if his own research leaves him feeling pessimistic about the way the deck is stacked against many groups in society, and the poor prospects for a more just society, Mullainathan says: “My view of human behaviour is fundamentally optimistic. In my view there is far less active malice in the world. There are instead a lot of hidden biases that achieve the same ends. But the distinction is important. I think many people want to do the right thing: they want to be fair to others, to treat them equally. That fundamental desire gives us a tremendous opportunity. An opportunity we would not have if all the ‘deck stacking’ were conscious and deliberate. This is luckily not the 1950s nor the 1850s.”

His Harvard University students, he says, are interested in a fairer world. “Very much so. Far more than when I was an undergraduate. Talking about ‘poverty’ is very cool. These students want to make a difference, even if they do end up working on Wall Street.

Mullainathan does not believe that it is necessary to engage directly with government to see one’s research findings informing policy and benefiting society. “I think not. More than ever, we now have a marketplace of ideas, one that is buzzing with interest. Policymakers are very active participants and listeners in those conversations. Ideas are very much the currency of the day. Of course there comes a time - when ideas pique interest - when sleeves must be rolled up and the actual work of implementation must be done. If you’re not willing to help make that part happen, then there is a problem.”

Asked about his hopes for Scarcity in an age in which it appears that the poor are increasingly being blamed for their financial situation, he says, “I want to change the conversation. I think this is a fundamentally misguided way to view poverty. I genuinely feel that if people could reflect on their own lives they will immediately see the ways in which scarcity affected their own thinking. And once you see that, it is easy to see how it could affect the lives of the poor. We call this the ‘empathy bridge’. This is one reason I felt it was important to discuss scarcity broadly - since we all have experienced it - rather than poverty specifically.”

Despite its limitations, says Mullainathan, classical economics should not be dismissed. “There are some fundamental and lasting truths in economics, ones that absolutely cannot be ignored. For example: markets do have power in allocating goods and resources effectively; self-interest can be harnessed for social interest; government interventions can have predictable distortions. I could go on.

“The problem with economics,” he continues, “is not that its statements do not have truth in them. It is that they are applied dogmatically and absolutely by some. Take any of the statements above. We have empirical truth that they do hold some of the time (a non-significant fraction of the time). But we also have evidence that they fail. What do you expect? This is a social science. Yet some economists persist in acting as if these are absolutes. I think this is fundamentally corrosive both to the policy debate and to any hope of economics of becoming a genuine science. Science is not defined by assertions of what we know, but by a willingness to be upfront and forceful about what we do not know.”

Asked about his hobbies, Eldar Shafir, professor of psychology and public affairs at Princeton University, replies: “Love windsurfing; not very good at it. (Wish I could practise more!) Love music; can’t play a note. Love travelling with my family; we do that well.”

Shafir lives in Princeton, New Jersey “with my wife, Anastasia Mann, a historian, writer and researcher, and our two daughters. Our only pet at the moment is a goldfish named Fabrizio, although the girls are campaigning for more.”

Princeton “is a village of sorts”, he says, “with the good stuff - you can walk to work, it’s actually quite cosmopolitan, and you know lots of people - and the less good stuff - limited venues for going out, none of the richness that comes with real neighbourhoods, and you know lots of people”.

He says: “I was born in Tel Aviv, Israel. Everything we know suggests this must have played a role, somehow. But I don’t exactly know how. Although there does seem to be an over-representation of Israelis among decision researchers…I also spent about six years living in Europe - Italy, Belgium, Spain - as a boy. Probably partly as a result of this, I never grew up attached to any one place; I feel more a citizen of the world than of any one nation.”

Of his early life, Shafir recalls: “I was a good student, from a non-academic family, and never thought of the academic life. Went to college a week after the military, loved it, and never really looked back. Interestingly, my brother, Sharoni Shafir, also took the academic route - he’s a biologist at Hebrew University.

Has his research made him more or less of an optimist or a pessimist about human nature, and our ability to treat others fairly?

“It’s a bummer that this is my answer, but, on the whole, I am a pessimist. The behavioural research programme shows that our behaviours are largely a function of context, above and beyond what we bring from within. And contexts, unfortunately, are messy, often uncontrollable, and frequently cruel.”

Shafir was recently asked to participate in the President’s Advisory Council on Financial Capability. It was not, he says, a difficult decision to join. “It was an important issue, and I was delighted to be able to do all I could to (at least try to) help. How will I judge the success? We will most likely never be able to. The council could only make recommendations; we had no real decision power. We had a diversity of perspectives, and I think we made some good recommendations. The President and those around him clearly listened and cared. From there to impact…it’s a long and winding road.”

Of those he teaches, Shafir observes, “Princeton University students are a multifaceted and diverse slice of the younger generation. They come in all forms. Some are truly remarkable: smart, dedicated and caring.”

Asked whether, as a psychologist, he finds the assumptions of classical economics improbable, or a contributory factor in inequality, he says: “I think the theoretical, academic economic programme is highly aesthetic and very compelling. It makes idealised assumptions, of course, but consciously so. And it uses that theoretical framework to produce some very interesting results. It’s the slippery passage to applied and policy work, while conveniently forgetting that the ‘economic agents’ have now drastically changed, that creates some difficulties.

“The political ramifications are a different story, I think,” Shafir adds. “Economic assumptions do not shape societies. That, the way I see it, is the outcome of a complex web of interests of the wealthy and the powerful, who selectively use economists, and others, to support their shaping of the world.”

Of his hopes for this book, he says: “In the best of possible worlds, Scarcity would do two things: first, alter people’s view of the poor a little - provide an ‘empathy bridge’ between the familiar sense of being overwhelmed and distracted when one is busy, for example, and the realisation that the poor experience something similar, intensely, almost all of the time. Second, Scarcity might add a few insights to our attempts to understand the human predicament and how we might be able to construct policies that ameliorate it at least a little.”

Karen Shook