This article is by staff writer Kristin Wong.
(This is a two-part series. Part II is “Our brains on scarcity: Breaking out of the trap.”)
I recently discovered the book “Scarcity: Why Having Too Little Means So Much.” To be honest, I don’t even remember how I came to find out about the book. Maybe someone recommended it; maybe I read about it somewhere. Lately, I’ve been overwhelmingly busy, and, as a result, my short-term memory is shot.
Coincidentally, that’s what the book is about. Authors/researchers Sendhil Mullainathan and Eldar Shafir explain how our mental bandwidth changes when we don’t have enough of something — namely, time and money.
Contrary to the belief that poor decision-making leads to poverty, the book’s authors sought to prove that it’s actually the other way around: poverty (or scarcity) leads to poor decision-making. What’s more, scarcity creates an awful cycle of bad decisions. The authors point to study after study that proves this to be true.
According to the book, there are a variety of ways scarcity negatively impacts our mindset.
“Scarcity is not just a physical constraint,” the book points out. “It is also a mindset. When scarcity captures our attention, it changes how we think. By staying top of mind, it affects what we notice, how we weigh our choices, how we deliberate, what we decide and how we behave.”
Scarcity lowers cognitive capacity
The researchers conducted a variety of experiments to test the effect of scarcity on our cognitive capacity. To put it crudely, they wanted to find out: Does scarcity make us dumb? Or at least, does it make us perform poorly?
In one study, researchers conducted basic IQ tests on subjects in a New Jersey mall. They noted the subjects’ self-reported income, and introduced them to a financial problem:
“Imagine that your car has some trouble, which requires an expensive $3,000 service. Your auto insurance will cover half the cost. You need to decide whether to go ahead and get the car fixed, or take a chance and hope that it lasts for a while longer. How would you go about making such a decision? Financially, would it be an easy or difficult decision for you to make?”
Without this problem presented to them, both groups generally performed the same on the tests. But once the financial problem was presented, sure enough, the low-income group performed worse than the high-income group.
To test their hypothesis in the real world, the researchers studied sugar cane farmers in India. They found that, during months when their crops weren’t harvested (and they weren’t paid), farmers performed worse cognitively than where their pay was abundant.
“Using these tasks, we found that farmers performed much worse before harvest than after harvest. The same farmer fared worse on fluid intelligence and executive control when he was poor (pre-harvest) than when he was rich (post-harvest). Much like the subjects at the mall, the same person looked less intelligent and more impulsive when it was poor. Yet in this case it was not us who triggered scarcity-related thoughts or even tried to bring them to the surface. These thoughts were there naturally…”
Basically, in both a controlled study and in a study of the real world, Mullainathan and Shafir found that not having enough lowers our intellectual performance.
Scarcity makes us less polite
In yet another study, researchers wanted to test the effects of scarcity on behavior. They presented a group of Australian students with “something they found revolting: a chicken foot cooked in a Chinese style that preserved the entire foot intact, claws included.”
“The challenge for the subjects was that this was served by a Chinese experimenter, creating some pressure to act civilized.”
Before being presented the chicken foot, some of the subjects were asked to memorize two numbers. Others were asked to memorize eight. Obviously, the latter task was more difficult. It imposed upon their bandwidth. Those participants were now busy with the task of memorizing a series of numbers.
Subjects who only had two numbers to memorize were polite about the offering of the chicken foot. The taxed group wasn’t so polite:
“Those whose minds were not loaded managed to maintain composure, keeping their thoughts to themselves. Not so with the cognitively loaded subjects. They would blurt out rude comments, such as ‘This is bloody revolting’ despite their best intentions.”
When our brains are preoccupied, we act differently. We’re less focused on the “pressure to act civilized.” Based on their data, it seems like our preoccupation makes us less polite.
Scarcity makes us more impulsive
Mullainathan and Shafir used the same number memorization experiment to test impulsiveness. Instead of presenting groups with a chicken foot, they presented them with a room of cake and fruit, giving them the choice of either.
“Those whose minds were not terribly occupied by the two-digit number chose the fruit most of the time. Those whose minds were busy rehearsing the seven-digit number chose the cake 50 percent more often. The cake is the impulsive choice … when our mental bandwidth is used on something else, like rehearsing digits, we have less capacity to prevent ourselves from eating cake.”
Scarcity causes neglect
To summarize the rest of the findings, the book’s researchers found that scarcity causes us to neglect other areas of our life and prevents us from thinking about the consequences of our decisions. The book points to a series of real-world examples, including payday loans:
“Why do those strapped for cash take on such extreme loans that they cannot afford to pay back? Why do they allow themselves even to start down such a slippery slope? Such questions typically lead to debates about the importance of personal responsibility or about how unscrupulous businesses prey on low-income individuals; they fuel discussions about the myopia of the poor and the need for financial education…”
Those arguments might have some truth to them. We’ve often talked about the need for financial education. And the answers to the problems aren’t simple. But, overall, the book points out that, in addressing the issue of poverty, we should consider the role of the scarcity mind-set.
When we’re constantly juggling life’s demands, zeroed in on survival, we don’t have much time to take a step back and focus on the big picture.
Are there any advantages to scarcity?
The book does address the benefit of scarcity. When we’re under pressure, sometimes we perform better. Sometimes, not having enough teaches us lessons that help us later in life. This reminded me of our discussion on romanticizing poverty. Yes, maybe there are some lessons you learn when you don’t have enough. But, as the book explains, and as many of you pointed out in that post, this can have a negative impact in the long-term.
“What [the poor] have is a specific skill: they are better at making ends meet today. They make a dollar go further. This expertise can make them appear more rational, less prone to inconsistencies, in some contexts. But this local expertise also becomes a hindrance. Along with the focus that brings expertise comes tunneling. And with tunneling comes a slew of negative consequences.”
When you’re tunneling, you’re only focused on the desperate situation of the moment. Other areas of your life become neglected. You lack foresight, and you get caught in a scarcity trap.
So what’s the solution? The authors address the big picture problem of poverty, but that’s a pretty daunting issue that can’t be solved in one book.
However, they do have some insight that might offer relief for the individual looking to improve his or her situation. In Part II of this article, I’ll talk about their chapter on dealing with “Scarcity in Everyday Life.”