Scarcity

One-line takeaway

People tend to organize their lives around what they do not have.

What is Scarcity: Why Having Too Little Means So Much about?

Mullainathan’s argument in Scarcity is pretty simple, but quite easy to overlook in day-to-day life.

People tend to organize their lives around what they do not have.

For example, if someone is poor or grew up poor, many of their decisions will naturally be controlled by money.

The subtle danger here—especially with something like money—is that this seems to be entirely reasonable. We might think, “Of course there is nothing wrong with prioritizing saving money when making decisions.”

And there is not.

But when scarcity manipulates our thinking, it can cloud our judgment. The immediate need to save money can outweigh everything else, including comfort, time, relationships, health, or the overall quality of life.

A great read. I’m giving it 4 out of 5 because there is quite a bit of unnecessary repetition.

Ideas and takeaways

Tunnelling

The authors call this “narrowing of attention” towards a scarce resource tunnelling.

It’s not without its advantages, though. Scarcity can help us laser-focus on the problem directly in front of us. The authors call this the focus dividend.

One of the studies that caught my attention, and that illustrates this narrowing of attention particularly well, involves food. During the Minnesota Starvation Experiment, 36 healthy men were placed on a semi-starvation diet for six months. They were served two meals, amounting to about 1,570 calories in total.

As the experiment continued, food slowly began to take over their attention. In fact, it took all of it. They talked, read, dreamed, and daydreamed about nothing but food. Some started reading cookbooks and collecting recipes. Some of them later moved into food-related work, becoming chefs or entering agriculture as a career path.

This is the book’s core thesis: when something becomes too scarce, the mind cannot help but keep pulling it back into the centre of attention.

So, one might wonder… what’s wrong with this?

The problem is that, when this happens, our attention is terribly skewed towards just one thing when it should be spread more evenly among many.

For example, in a social experiment, participants were divided into “poor” and “rich” groups by giving them smaller or larger budgets of time and guesses. Those with fewer resources paid closer attention to how they used each one. In one game, they even earned more points per shot.

But when they were allowed to borrow resources from future rounds, they borrowed a larger share of their already limited budgets, sometimes at a very high cost. And as a result, they ended up performing worse. The more focused they became on the current round, the more they borrowed away from the rounds that came next.

Their judgment became too clouded. And they failed to see what it was costing them in the immediate future.

The Bandwidth Tax

The book argues that scarcity occupies part of our limited mental bandwidth.

This includes the attention, working memory, and self-control we have available for everything else.

In one experiment, researchers asked shoppers to think about different financial situations, such as having to pay for an unexpected car repair. When the cost was relatively small, lower- and higher-income participants performed similarly on the cognitive tests that followed. But when they had to pay a lot, the performance of lower-income participants slowly went down, while the performance of higher-income participants remained mostly unaffected.

Here, the financial problem itself had not yet even happened. Simply having to think through it seemed to occupy some of the mental space they needed to complete the task at hand.

In another part of the same study, the researchers followed Indian sugarcane farmers before and after the harvest. These farmers received much of their annual income at harvest time, which meant that the same farmers tended to be financially strained before the harvest and relatively better off afterwards.

The researchers found that the farmers performed worse on tests of cognitive function before receiving their harvest income and better after receiving it. Because they were comparing the same farmers at two different points in the harvest cycle, the difference could not be easily explained by some people simply being more capable than others.

The key takeaway here is subtle and can even be misleading.

The authors are not saying that people who experience poverty are inherently less capable or that they are naturally bound to make more mistakes.

Actually, they are arguing almost the opposite.

The same person may approach a decision very differently depending on how much of their mental bandwidth is being occupied by financial scarcity at that particular moment.

The person has not become less intelligent; rather, they just have less of their attention available for everything beyond the immediate problem.

The New Evidence That Challenges This

There are, however, newer studies that challenge some parts of this narrative.

A 2021 empirical audit attempted to replicate 19 findings from the scarcity literature. It concluded that scarcity primes had little consistent effect across the outcomes studied. In other words, simply making people think about having too little did not reliably change how they thought, behaved, or made decisions.

The authors behind some of the original scarcity research later challenged that conclusion. They argued that the audit grouped studies testing different ideas, changed important parts of some experiments, and treated failures to reproduce specific results as evidence against the broader theory.

So, as of now, the strongest counterargument is that there may not be a one-size-fits-all, universal bandwidth tax that works in the same way across every form of scarcity.

Scarcity of money, time, food, or social connection may all restrict our attention in some way. But they are not necessarily psychologically interchangeable. Being short on time may affect us differently from being unable to pay rent, for example.

A 2024 meta-analysis, which combined 256 effect sizes from 29 datasets, still found an overall relationship between financial scarcity and lower cognitive performance. But once education was taken into account, the estimated effect became much less relevant.

The current evidence, then, does not completely dismiss the book’s argument; it makes it more conditional.

The Most Useful Takeaway

The most useful takeaway that still holds up reasonably well under the current research is this: our attention comes with conditions.

So, how can we integrate this into our day-to-day lives in a useful way?

The first step is to understand that when we repeatedly fail to plan, remember, or see more than a couple of steps ahead, it may not be due to our lack of discipline, at least not entirely.

Sometimes, it’s a problem of competing priorities.

When too many things are competing for our attention, we naturally give more weight to whatever seems to be most urgent at the moment.

And when that happens repeatedly, our judgment becomes cloudy.

The practical response to this is to avoid building a life in which every resource is already fully committed to the future.

For example, things to avoid are:

• assigning small margins of error when planning something,
• scheduling the day to the minute without having a backup plan when things unexpectedly go haywire,
• and obligating yourself to remember everything.
  

Instead:

• use reminders,
• automate recurring tasks,
• and keep some room in a budget for a rainy day.

This is what the authors describe as slack: spare money, unclaimed time, simpler systems, and having enough room to make one mistake without causing the next five later on.