How Scarcity Trap Affects Our Thinking, Behavior

A Harvard economist finds there are psychological connections between the bad financial planning of many poor people and the poor time management of busy professionals. In both cases, he finds the experience of scarcity causes biases in the mind that exacerbate problems.

RENEE MONTAGNE, HOST:

Let's hear now about a new book that explores a major source of stress. The book is called "Scarcity," and it's a look at what happens to us when we're pressured with too little time or too little money. The authors say scarcity actually changes how we think. NPR's social science correspondent Shankar Vedantam explains.

SHANKAR VEDANTAM, BYLINE: Each September, the state of Massachusetts asks one thing from "Scarcity" author and Harvard economist Sendhil Mullainathan: to renew his car inspection sticker. And each year, this recipient of the MacArthur Genius Award does the same thing. He's really busy so on each day leading up to the expiration of the sticker, he tells himself he'll attend to it the next day.

SENDHIL MULLAINATHAN: One more day of delay - I mean, what's the big deal?

VEDANTAM: Pretty soon, Mullainathan finds himself driving around Boston with an expired sticker.

MULLAINATHAN: The sticker is three months expired and now, you're doing all sorts of stuff; like, you're driving down the street - oh, look, there's a cop. I'd better make a right turn so he doesn't see my expired sticker.

VEDANTAM: Turning the wrong way makes Mullainathan late for a meeting, or late for class. Now, he has to spend time fixing the mistake, rescheduling meetings with students, playing catch-up. His next day gets even busier. Now, he definitely doesn't have time to fix that sticker.

MULLAINATHAN: I do this constantly. Right now, I've got a meeting to get to. I don't have the time to replace the sticker whereas the truth is, the enormous amount of distortions I've now made for the last three months because of the stupid sticker, add up to five times as much time as I would've spent just going and having it fixed.

VEDANTAM: Mullainathan recently decided to think about his behavior like a researcher would. Was he just a busy, absent-minded professor, or was there something else going on? He thought about research in his own field. He studies the economics of poverty. Lots of studies show poor people tend to make bad financial decisions, the kind that land them in ever deeper cycles of debt. Mullainathan realized there was an unexpected connection between his behavior and the behavior of the people he studied.

MULLAINATHAN: Just as the poor mismanage their money, isn't it astonishing how badly I mismanage my time?

VEDANTAM: Not having enough money, and not having enough time, might not seem like similar things but psychologically, they are similar. You're running low on something you desperately need; you feel the pinch of scarcity. Mullainathan turned to a colleague at Princeton, the psychologist Eldar Shafir. That conversation led to the book "Scarcity," which they wrote together.

Just as Mullainathan was asking why he mismanaged his own time, Shafir said he was asking why the poor make bad financial decisions.

ELDAR SHAFIR: Perhaps it's the context of poverty itself, being in that context, that brings about a very special psychology, a psychology that's particular to not having enough. And then that psychology brings out problematic outcomes.

VEDANTAM: After lots of research, Mullainathan and Shafir have concluded that when you don't have something you desperately need, the feeling of scarcity works like a trap. In a study looking at poor farmers in India, for example, the researchers found that farmers tended to be better planners and thinkers when they were flush with cash. But right before harvest, when they were strapped for cash, Mullainathan says their brains focused only on short-term goals.

MULLAINATHAN: When you have scarcity and it creates a scarcity mindset, it leads you to take certain behaviors which in the short term, help you manage scarcity but in the long term, only make matters worse.

VEDANTAM: Poor farmers, for example, tend to weed their fields less often than wealthy farmers. It's the same with being super busy. The busier Mullainathan got, the harder it became for him to make time to get his car sticker. In fact, there was a short-term reward for not getting the sticker. On each day he didn't get the sticker renewed, he saved a little time to devote to other pressing demands.

But each delay made things worse the next day. Scarcity, whether of time or money, tends to focus the mind on immediate challenges. You stretch your budget to make ends meet. People in the grip of scarcity are tightly focused on meeting their urgent needs, but that focus comes at a price. Important things on the periphery get ignored.

MULLAINATHAN: That's at the heart of the scarcity trap. You are so focused on the urgent that the important gets waylaid. But because the important gets waylaid, you're experiencing even more scarcity tomorrow.

VEDANTAM: Mullainathan and Shafir think we ought to change how we think about poverty, and how we think about time. When poor people and busy people run short of money or time, we tend to blame them.

MULLAINATHAN: There's this presumption in our entire social policies sphere that mistakes happen because of willful negligence. And I think just - understanding that yes, we need incentives to prevent willful negligence; but we also need a way to recognize that no matter how hard somebody tries, there will be mistakes.

VEDANTAM: It might be possible to reduce the impact of mistakes caused by scarcity. The poor farmer in India might need repeated reminders about weeding. One might not be enough. The minimum-wage worker in America might need a couple of extra days to pay her bills instead of being slapped with a fine one day after payment is due.

For busy people, Shafir says a respite from scarcity might mean penciling in a block of time in their calendar so long-term things have a chance to bubble up.

SHAFIR: One of the few things I've learned from the book - which I try to adhere to now - is throughout my day, when I have a day that's, you know, scheduled moment by moment throughout the day - fully packed - I try to arrange a couple of half-hour chunks, half-hour slots that are unplanned.

VEDANTAM: If you try to make an appointment with Shafir at that time, he'll tell you he has a meeting. What he doesn't tell you is that the meeting is with himself.

Shankar Vedantam, NPR News.

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