BOOK SUMMARY 57 Scarcity

BOOK SUMMARY 57 Scarcity

·         Summary written by: Ronni Hendel-Giller

"Because the focus on scarcity is involuntary, and because it captures our attention, it impedes our ability to focus on other things. Scarcity in one walk of life means we have less attention, less mind, in the rest of life."

- Scarcity, page 41

Having too little—money or time—can affect us in ways that are more profound than we might have imagined. In Scarcity, Sendhil Mullainathan, an economist, and Eldar Shafir, a psychologist, re-interpret existing studies and share the results of their own research, to show the impact of having less—of experiencing scarcity—on our minds and therefore on our lives. Perhaps their most powerful finding is that scarcity has a direct and powerful impact on intelligence and executive control. Where we tend to assume (consciously or unconsciously) that poverty is a result of personality, talent and intelligence—they demonstrate that intelligence, motivation and patience, among other attributes, are in fact deeply influenced by whether we are experiencing scarcity or abundance. The authors also demonstrate that a type of scarcity common to many of us who live in relative financial abundance—a perceived scarcity of time—has many of the same psychological impacts—which allows us greater empathy with those who are suffering from economic scarcity along with useful insights into how we can better live our lives.

The Golden Egg

It’s All About Bandwidth

"It is easy to confuse a mind loaded by scarcity for one that is inherently less capable. We are emphatically not saying that poor people have less bandwidth. Quite the opposite. We are saying that all people, if they were poor, would have less effective bandwidth. "- Scarcity, page 65

Our bandwidth is limited—and when too much of it is spent managing scarcity, our capacity is limited. When we are dealing with scarcity—of time or of money—we are distracted and our attentional resources are depleted. We “tunnel” on what is most immediately critical and have little ability to engage in what is not. This leads to things like over borrowing, failing to invest, and just generally not having as much intellectual capacity. This is what the authors call the bandwidth tax—and, in study after study, a significant drop in a variety of intelligence measures occurs when we are experiencing scarcity. One of the most fascinating and powerful studies is of Indian sugar cane farmers. Since they are paid at time of harvest, they experience both abundance and scarcity within any given year—because, invariably, money runs out towards the end of the year. Intelligence tests and tests of executive control demonstrate that the very same people test higher when living in abundance than when living in scarcity.

In case you think this is only a problem of the third world, similar studies were done in the first world—putting people in situations that created scarcity and abundance—and the same results emerged.

By understanding that scarcity itself creates the bandwidth tax, new possibilities for addressing scarcity emerge. Perhaps most importantly, we can see people differently and recognize that the behaviors of people (and organizations) living with scarcity are a result of reduced bandwidth—rather than being a result of what people are capable of.

Gem #1

The Value of Slack

"To be free from a scarcity trip, it is not enough to have more resources than desires on average. It is as important to have enough slack (or some other mechanism) for handling the big shocks that may come one’s way at any moment."- Scarcity, page 137

The authors provide several examples of studies of people who were dealing with financial or time scarcity and ended up in a situation of borrowing—and therefore debt. They were able to get out of the hole (in some studies, by having their debts paid off) and, within a short period of time—were right back where they started. In trying to understand this phenomenon, the authors, once again, don’t blame it on the individual’s nature—but on a structure that supports those of who live in abundance. In abundance, there is slack. In situations of scarcity, there is none. Without slack, scarcity will return because there is no back-up plan, no ability to absorb unexpected shocks.

The takeaway here is that there are a variety of ways to structure situations to ensure more slack. This includes the rethinking of social programs, the way that loans are managed and a myriad of other small ideas that could have big impacts.

And, for those of us not dealing with financial scarcity, and perhaps time scarcity, there are also ways to create more slack. A great organizational example that the authors gave was a hospital that never had enough beds for emergencies. By simply leaving one room unscheduled at all times—creating slack—they fixed the problem. Why did they need an external consultant to show them this simple—and even obvious—solution? Because they were “tunneling” on handling patients and unable to step out of the tunnel to see a bigger picture. Their organization’s cognitive capacity was diminished and the value of an outside perspective was even greater.

Gem #2

One-time Fixes

"Especially when you tunnel, it is much easier to do the right thing once than to have to repeat it… Whenever possible, convert vigilant behaviors into one-time actions. Rather than having to be vigilant every time you grab a snack from the pantry, just be vigilant [in buying healthy foods] at the grocery store."- Scarcity, page 212

While this is not a book with easy remedies, here’s a wonderfully simple principle—with implications for individuals, organizations and societies. Make it harder to make bad choices and easier to make good ones by creating structures that embed the good and reduce the bad. For example, having an automatic savings plan means that you can “neglect” savings—it’s being done for you, in the background. Setting up automatic bill payments means that no matter how busy you get, you don’t forget to pay your bills. Spending time with your kids is easier when you sign up for an activity together and it’s on your calendar—than needing to plan it every week.

And, alternately, make it harder to make bad one-time decisions. For example, a cooling off period for loans is a potential policy strategy to reduce the ease of making a bad decision.

Anyone who I’ve talked to in the last few weeks knew I was reading Scarcity. There are so many thought-provoking ideas and fascinating studies that I find myself unable to be in a conversation without at some point referring to the book. The fact that income inequality and poverty are very significant issues in our world is enough reason to read Scarcity—and the additional insights it offers for people and organizations are icing on the cake. And, it’s a great read.

What resonates for you about the concept of Scarcity? What new insights does it offer? How might the concept of Scarcity shift your perspective?