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Scarcity by Sendhil Mullainathan and Eldar Shafir

Posted by Raul Barral Tamayo en martes, 21 de diciembre, 2021

Copyright © Sendhil Mullainathan and Eldar Shafir, 2013

The true cost of no having enough.

Sendhil Mullainathan is a Professor of Economics at Harvard, and a recipient of a MacArthur Foundation ‘genius grant’. He conducts research on development economics, behavioural economics, and corporate finance. He is Executive Director of Ideas 42, Institute of Quantitative Social Science, Harvard University.

Eldar Shafir is William Stewart Tod Professor of Psychology and Public Affairs at Princeton University. Most of his work focuses on descriptive analyses of inference, judgement, and decision making, and on issues related to behavioural economics.

Comments extracted from the book, they could be right or wrong, you decide for yourself:

  • Voltaire: «Illusion is the first of all pleasures».
  • Financial advise from many sources. Some expenses may be tough to cut, but you’ll have to learn how. Pay off your old debts as quickly as possible. Eventually, with no new debts, your payments will become manageable. After this, remain vigilant so as not to fall back on. Spend and borrow wisely. Avoid unaffordable luxuries. If you must borrow, be clear about what it takes to pay it back.
  • By scarcity, we mean having less than you feel you need.
  • Scarcity captures the mind. Just as the starving subjects had food on their mind, when we experience scarcity of any kind, we become absorbed by it. The mind orients automatically, powerfully, toward unfulfilled needs. Scarcity is more than just the displeasure of having very little. It changes how we think. It imposes itself on our minds.
  • Scarcity’s capture of attention affects not only what we see or how fast we see it but also how we interpret the world.
  • In economics, scarcity is ubiquitious. All of us have a limited amount of money; even the richest people cannot buy everything. But we suggest that while physical scarcity is ubiquitius, the feeling of scarcity is not.
  • Scarcity is not just a physical constraint. It is also a mindset.
  • When we function under scarcity, we represent, manage, and deal with problems differently.
  • When scarcity captures the mind, we become more attentive and efficient.
  • We can measure mental capacity or, as we call it, bandwith.
  • Being poor reduces a person’cognitive capacity more than going one full night without sleep. It is not that the poor have less bandwith as individuals. Rather, it is that the experience of poverty reduces anyone’s bandwith.
  • Because bandwith affects all aspects of behavior, this shortage has consequences. There is one particularly important consequence: it further perpetuates scarcity. This provides a very different explanation for why the poor stay poor, why the busy stay busy, why the lonely stay lonely, and why diets often fail.
  • Our argument in this book is quite simple. Scarcity captures our attention, and this provides a narrow benefit: we do a better job of managing pressing needs. But more broadly, it costs us: we neglect other concerns, and we become less effective in the rest of life.
  • Organizational researchers find that salespeople work hardest in the last weeks of a sales cycle. In one study we ran, we found that data-entry workers worked harder as payday got closer.
  • Churchill: «An Englishman’s mind works best when it is almost too late».
  • A deadline leads the current task to be top of mind. You do not linger at lunch when the chapter is due soon, you do not waste time on tangents when the meeting is about to end, and you focus on  getting the most out of college just before graduating. We call this the focus dividend, the positive outcome of scarcity capturing the mind.
  • We are less liberal with the toothpaste as the tube starts to run empty. In a box of expensive chocolates, we savor (and hoard) the last ones. We run around on the last days of a vacation to see every sight.
  • Scarcity by itself can create a focus dividend.
  • It is very hard to fake scarcity. The scarcity dividend happens because scarcity imposes itself on us, capturing our attention against all else. It is exceedingly difficult to fool ourselves into working harder by faking a deadline. An imaginary deadline will be just that: imagined. It will never capture our mind the way an actual deadline does.
  • As the psychologist Daniel Kahneman would say, scarcity captures the mind both when thinking fast and when thinking slow.
  • The power of focus is also the power to shut things out. Scarcity causes us to tunnel: to focus single-mindedly on managing the scarcity at hand.
  • Focus is positive: scarcity focuses us on what seems, at that moment, no matter most. Tunneling is not: scarcity leads us to tunnel and neglect other, possibly more important, things.
  • Focusing on one thing inhibits competing concepts.
  • Focusing on something that matters to you makes you less able to think about other things you care about. Psychologists call this goal inhibition. Goal inhibition is the mechanism underlying tunneling. Scarcity creates a powerful goal that inhibits other goals and considerations. Things unrelated to the immediate goal will not cross his mind.
  • Inhibition is the reason for both the benefits of scarcity and the costs of scarcity.
  • Considerations that fall within the tunnel get careful scrutiny. Considerations that fall outside the tunnel are neglected, for better or worse.
  • Another manifestation of tunneling is the decision to multitask. This has the benefit of saving time, but it comes at a cost: missing something on the call or at dinner or writing a sloppy e-mail.
  • Things outside the tunnel are harder to see clearly, easier to undervalue, and more likely to get left out.
  • When we experience scarcity again and again, omissions can add up. This not should be confused with a lack of interest; after all, the person himself regrets it.
  • Because the focus on scarcity is involuntary, and because it captures our attention, it impedes our ability to focus on other things. Even when we try to do something else, the tunnel of scarcity keeps drawing us in. Scarcity in one walk of life means we have less attention, less mind, in the rest of life.
  • This is how scarcity taxes bandwidth. The persistent concern pulls at the mind, drawing us in. Just like an external noise that distracts us from thinking clearly, scarcity generates internal disruption.
  • When someone says your name across the room at a party, your attention shifts no matter how intently you are trying to focus on something else.
  • How smart do you feel after a night of no sleep? How sharp would you be the next morning?
  • The same person has fewer IQ points when she is preoccupied by scarcity than when she is not.
  • Self-control remains one of the more difficult parts of the study of psychology.
  • Willpower, a resource whose functioning we do not fully understand, is affected, among other things, by personality, fatigue, and attention.
  • Whether it is eating cake we would rather resist or saying things we do not mean to say, a tax on bandwidth makes it harder for us to control our impulses.
  • Scarcity not only can lower fluid intelligence but can also reduce self-control.
  • Physical exhaustion could easily bring mental exhaustion.
  • People simply perform worse when they are dieting. If you are able to settle into a new equilibrium and find yourself no longer needing to restrain eating, then the bandwidth tax dissapears.
  • Scarcity is not the only thing that can tax bandwidth. Imagine you had a fight with your spouse one morning. You might not be very productive at work.
  • Scarcity predictably creates an additional load on top of all of their other concerns. It consistently and predictably taxes bandwidth. Everyone can be preoccupied: rich and poor people fight with their spouses; rich and poor people can be flustered by their bosses. But whereas only some people who experience abundance will be preoccupied, everyone experiencieng scarcity will be preoccupied.
  • Even smiling and being pleasant is hard when your mind is taxed. A taxed bandwidth leads to carelessness.
  • So much of what we attribute to talent or personality is predicated on cognitive capacity and executive control.
  • The problem is not the person but the context of scarcity.
  • We are saying that all people, if they were poor, would have less effective bandwidth.
  • Scarcity makes us dumber. It makes us more impulsive.
  • Scarcity forces trade-off thinking. Slack is what allows us to feel there is no trade-off.
  • We do not use slack to refer to the sort of room deliberately created to deal with the unexpected, the kind that’s actually actually carefully budgeted.
  • Why do bees create such precise structures and the wasps such messy ones? Scarcity. The wasps build with material that is abundant: mud. The bees build with material that is scarce: wax.
  • original entry: https://raulbarraltamayo.wordpress.com/2021/12/21/scarcity-by-sendhil-mullainathan-and-eldar-shafir/
  • Economists call this diminishing marginal utility: the more you have, the less each additional item is worth to you.
  • George Carlin: «A house is just a pile of stuff with a cover in it».
  • Slack provides an easy way to avoid the burden of choosing. If you had slack, you could do both.
  • Everyone from managers to movie producers suffers from the planning phallacy: we are all much too optimistic with our future plans.
  • Slack provides a hidden efficiency. It gives us room to maneuver, to reshuffle when we err. Slack gives us room to fail.
  • If anything, scarcity will lead us to greater errors. The bandwith tax places us in a position where we are prone to make mistakes.
  • Scarcity not only raises the costs of error; it also provides more opportunity to err, to make misguided choices. It is harder to do things right, because many items must be carefully made to fit into a constrained budget.
  • A big suitcase does not just permit more room; it removes the feeling of scarcity. We not only feel we have enough space; we do not even notice trade-offs.
  • While actual limits and trade-offs are universal, the experience is not.
  • Having slack allows us the feeling of abundance.
  • Henry David Thoreau: «A man is rich in proportion to the number of things he can afford to let alone».
  • Slack, and the absence of trade-offs, means we have no intuitive, easy way of valuing things.
  • Frugality does not capture the experience of scarcity. The frugal have a principled conscientiousness about money. The poor must be vigilant about trade-offs. When making a purchase, the frugal consider whether the price is «good». The poor, in contrast, must ask themselves what they must give up to afford that price.
  • Abundance leaves us less able to know the value of a dollar.
  • Once you understand the cues that the brain uses, you can manipulate them a little, which sometimes leads to perverse outcomes.
  • Behavioral economics was born from the empirical observation that people violate several basic predictions of economics.
  • We are not proposing that the poor are always more rational. What they have is a specific skill: they are better at making ends meet today. They make a dollar go further. They become experts in the value of money.
  • A 1997 study estimated that nearly 5 percent of the annual income of the poor was spent on reconnections and servicing and late feeds, a number that we suspect has risen dramatically since then.
  • How many taks are delayed time and time again before they finally get done? Borrowing goes hand in hand with scarcity.
  • Why do we borrow when we face situations of scarcity? We borrow because we tunnel. And then we borrow, we dig ourselves deeper in the future. Scarcity today creates scarcity tomorrow.
  • Researchers have documented a bias toward the here and now, which they call hyperbolic discounting, or present bias. We overvalue immediate benefits at the expense of future ones. Present bias would also generate borrowing.
  • Patching is a lot like borrowing, a failure to invest and to commit the resources now so that the job is done correctly.
  • When your tire goes flat, you may literally opt for a cheap patch rather than get a new tire. You know that a patched tire is less advisable, less safe, and less durable than a new tire. But that, too, is outside the tunnel. For now, inside the tunnel, the patch makes life a lot easier.
  • Busy people tend to neglect the important but not urgent tasks.
  • Putting off an important but not urgent activity is like borrowing. You gain time today by not doing it.
  • When we focus so intensely on making ends meet now, we plan less effectively for the future. Of course, studies have shown that planning is a problem for all people. But scarcity makes this problem a whole lot worse.
  • Stepping back, detaching from the moment, and thinking ahead requires a wider perspective and some cognitive resources.
  • Tunneling is not a personal trait. Tunnels limit everyone’s vision.
  • Steven Wright: «Everywhere is walking distance if you have the time».
  • A scarcity trap: a situation where a person’s behavior contributes to her scarcity.
  • The scarcity trap is more than a shortage of physical resources. It is based on a misuse of those assets so that there is an effective shortage. It is constantly being one step behind, constantly paying off last month’s expenses. The problem is not how much is being spent but how it is spent.
  • Juggling: the constant move from one pressing task to the next. Juggling is a logical consequence of tunneling. When we tunnel, we «solve» problems locally and temporarily.
  • Juggling is why predictable events are treated like shocks. When you juggle, you tunnel on the balls that are about to drop, and you neglect those high in the air.
  • Juggling is not about being harried in time; it is about having a lot on one’s mind. Much of one’s bandwidth ends up being devoted to the balls in the air that are about to fall.
  • Being one step behind and juggling define the scarcity trap.
  • Planning requires stepping back, yet juggling keeps us locked into the current situation. Future planning requires bandwidth, which scarcity taxes heavily.
  • Escaping the scarcity trap does not merely require an occasional act of vigilance. It requires constant, everlasting vigilance; almost all temptations must be resisted almost all the time.
  • Recent research shows that self-control may actually get depleted as we use it. A persistent need to resist temptation would deplete, making it all the more difficult to escape the scarcity trap.
  • The core of the problem is the lack of slack.
  • To be free from a scarcity trap, it is not enough to have more resources than desires on average. It is important to have enough slack for handling the big shocks that may come one’s way at any moment.
  • With scarcity traps, what would otherwise be periods of abundance punctuated by moments of scarcity can quickly become perpetual scarcity.
  • Staying clear of the scarcity trap requires more than abundance. It requires enough abundance so that, even after overspending or procrastinating, we still leave neough slack to manage most shocks.
  • Poverty is surely the most widespread and important example of scarcity.
  • Less money means less time. Less money menas it is harder to socialize. Less money means lower quality and less healthy food. Poverty means scarcity in the very commodity that underpins almost all other aspects of life.
  • While people at every income level may fail to take their medications, the poor do so most often.
  • One broad them emerges from decades of this research: the poor are worse parents. Why do the poor fail so badly and in so many ways? This is the elephant in the room.
  • The poor in the United States who are on Medicaid pay nothing for their medications, yet they fail to take them regularly.
  • Poverty, the scarcity mindset, causes failure.
  • The same aire traffic controller acted «middle class» after an easy day at work and acted «poor» after a hard day’s work.
  • Good parenting generally requires bandwidth. It requires complex decisions and sacrifice. Being a good parent requires many things. But most of all it requires freedom of mind. That is one luxury the poor do not have.
  • The poor are not just short on cash. They are also short on bandwith.
  • Many of our behaviors, not just parenting, rely on bandwidth.
  • Absorbing new information requires working memory.
  • So many of the «failures» surrounding poverty can be understood through the bandwidth tax.
  • Other data on insomniacs show that they are more likely to be worriers. Put simply, it is hard to sleep well when you have things on your mind.
  • Insufficient sleep further compromises bandwidth.
  • Bandwidth underpins nearly every aspect of our behavior.
  • If you want to understand the poor, imagine yourself with your mind elsewhere. You did not sleep much the night before. You find it hard to think clearly. Self-control feels like a challenge. You are distracted and easily perturbed. And this happens every day.
  • To understand the poor, we must recognize that they focus and they tunnel and they make mistakes; that they lack not only money but also bandwidth.
  • Linear classes that must not be missed can work well for the full-time student; they do not make sense for the juggling poor.
  • Incentives that fall outside the tunnel are unlikely to work.
  • Many systems require slack in order to work well. Roadways operate best below 70 percent capacity; traffic jams are caused by lack of slack.
  • When you face scarcity, slack is a necessity.
  • In one simulation study, drivers using hads-free phones missed twice as many traffic signals compared to those who were not on the phone. Safe driving requires more than two hands; it requires bandwidth as well.
  • When Henry Ford famously adopted a 40-hour workweek in 1926, he was bitterly criticized by members of the National Association of Manufacturers. But his experiments, which he’d been conducting for at least 12 years, showed him clearly than cutting the workday from ten hours to eight hours, and the workweek from six days to five days, increaed total worker output and reduced production cost. Ford spoke glowingly of the social benefits of a shorter workweek, couched fimly in terms of how increased time for consumption was good for everyone. But the core of this argument was that reduced shift length meant more output.
  • Our needs today are pressing; those a month away are abstract and unrealized. This is how we end up overcommitted.
  • It is striking how often we fail to build a buffer stock. The data suggest that we tend to underappreciate the likelihood of many low-probability events. That’s why we underinsure for floods and earthquakes.
  • Buffer stock needs to be built during times of abundance.
  • Even when you know that shocks and scarcity can happen, it doesn’t feel that way when there’s abundance.
  • Have you ever said, «I don’t want to make this important decision now; my bandwitch is taxed?».
  • We schedule and manage our t ime but not our bandwidth. It is striking how little we notice or attend to our own fluctuating cognitive capacities. Contrast this with physical capacity, where e are attuned to the potential effects of eating, sleeping, exercise.
  • We know next to nothing about the cognitive side of  the economy. Just as our own individual bandwidth appears to fluctuate, it is likely that society’s bandwidth fluctuates as well.
  • When you’re tunneling, many rewards can fall outside the tunnel.
  • While scarcity plays a starring role in many important problems, abundance sets the stage for it.
  • Just as with scarcity, could t here also be a common logic to abundance, one that operates across these diverse problems? We ought to answer this question. Now that this book is done, we have plenty of time no to.

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