đ¸ Scarcity - Why Having Too Little Means So Much
Introduction
The chapter explores how scarcity shapes human thinking and behavior, creating a mindset that focuses heavily on the scarce resource, such as time or money. It draws parallels between time management and financial scarcity, using anecdotes and scientific studies like the Minnesota Starvation Experiment to illustrate how scarcity captures attention, taxes cognitive bandwidth, and leads to poor decision-making.
The Struggle with Scarcity
- Sendhil and Shawn both experienced scarcity in different waysâtime and money.
- Scarcity leads to poor decision making and can trap individuals in cycles of financial or time-related problems.
- Scarcity is not just about having little resources; it is about feeling insufficient in resources to meet needs.
Scarcity's Psychological Impact
- The Minnesota Starvation Experiment showed how scarcity captures the mind and turns focus toward the scarce resource.
- Scarcity changes how people think, making them prioritize the scarce resource over everything else.
- When people experience scarcity, their attention and cognitive capacity are heavily taxed, leading to errors and poor decision-making.
The Logic of Scarcity
- Scarcity creates a mindset that can explain many behaviors across different contexts and scales.
- The scarcity mindset increases focus and efficiency on immediate needs but results in neglect of other important areas.
- There is a bandwidth tax from scarcity that reduces cognitive capacity, affecting decision-making and behavior.
Part One: The Scarcity Mindset
1. Focusing and Tunneling
The chapter explores how scarcity influences attention and decision-making by focusing the mind on immediate tasks, known as the focus dividend, as seen in case studies and experiments. However, this heightened focus, or tunneling, can cause neglect of other important areas, resulting in cognitive bandwidth reduction and impulsivity. Experiments demonstrate both the positive and negative impacts of scarcity.
Scarcity and Focus
These meetings could not be more distinct. But in one way they are all the same. They all begin unfocused, the discussions abstract or tangential, the conversations meandering and often far off topic. Simple points are made in lengthy ways. Disagreements are aired but without resolution. Time is spent on irrelevant details.
But then, halfway through the meeting, things change. There is, as Gersick calls it, a midcourse correction. The group realizes that time is running out and becomes serious.
- Scarcity can sharpen focus by forcing concentration on immediate tasks at hand as seen in Connie Gersick's meetings study.
- Psychologists have evidenced productivity increases with tighter deadlines, illustrating the focus induced by scarcity.
- Scarcity-generated pressure can boost creativity and efficiency, as demonstrated by Amanda Cohen's Iron Chef experience.
Cognitive Inhibition and Tunneling
This is a basic feature of the mind: focusing on one thing inhibits competing concepts. Inhibition is what happens when you are angry with someone, and it is harder to remember their good traits: the focus on the annoying traits inhibits positive memories.
Scarcity in one walk of life means we have less attention, less mind, in the rest of life.
- Focusing on one thing inhibits competing concepts, as shown by the inhibition mechanism.
- Scarcity leads to tunneling, where focus on urgent tasks results in neglecting other important matters.
Scarcity's Broader Impact on Cognitive Function
Poverty itself taxes the mind.
We are saying that all people, if they were poor, would have less effective bandwidth.
Scarcity doesnât just lead us to overborrow or to fail to invest. It leaves us handicapped in other aspects of our lives. It makes us dumber. It makes us more impulsive. We must get by with less mind available, with less fluid intelligence and with diminished executive controlâ making life that much harder.
- Scarcity reduces cognitive bandwidth, affecting decision-making and increasing impulsiveness.
- The effects of poverty on the mind include reduced bandwidth and increased impulsiveness.
All Highlights
These meetings could not be more distinct. But in one way they are all the same. They all begin unfocused, the discussions abstract or tangential, the conversations meandering and often far off topic. Simple points are made in lengthy ways. Disagreements are aired but without resolution. Time is spent on irrelevant details.
But then, halfway through the meeting, things change. There is, as Gersick calls it, a midcourse correction. The group realizes that time is running out and becomes serious.
This is a basic feature of the mind: focusing on one thing inhibits competing concepts. Inhibition is what happens when you are angry with someone, and it is harder to remember their good traits: the focus on the annoying traits inhibits positive memories.
Scarcity in one walk of life means we have less attention, less mind, in the rest of life.
Top-down attention cannot prevent bottom-up intrusions. 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.
scarcity directly reduces bandwidthâ not a personâs inherent capacity but how much of that capacity is currently available for use.
Poverty itself taxes the mind.
We are saying that all people, if they were poor, would have less effective bandwidth.
Scarcity doesnât just lead us to overborrow or to fail to invest. It leaves us handicapped in other aspects of our lives. It makes us dumber. It makes us more impulsive. We must get by with less mind available, with less fluid intelligence and with diminished executive controlâ making life that much harder.
2. The Bandwidth Tax
Chapter 2 explores how scarcity, particularly financial scarcity, taxes cognitive bandwidth, impeding focus and decision-making. This impairment is not due to inherent capacity differences but how much mental capacity is diverted by scarcity-related concerns. The chapter highlights experiments showing reduced cognitive and executive control under scarcity, drawing parallels with other forms of scarcity like dieting and loneliness.
The Bandwidth Tax and Scarcity's Impact on Focus
Scarcity in one walk of life means we have less attention, less mind, in the rest of life.
Top-down attention cannot prevent bottom-up intrusions. 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.
- Scarcity captures attention involuntarily, making it difficult to focus on other tasks.
- Challenges like financial stress and urgent commitments preoccupy individuals, leading to distraction in unrelated areas of life.
- This involuntary focus on scarcity impairs cognitive bandwidth, reducing the mental capacity available for other tasks.
- Scarcity in one walk of life means we have less attention, less mind, in the rest of life.
- Top-down attention cannot prevent bottom-up intrusions.
Cognitive Capacity and Executive Control
scarcity directly reduces bandwidthâ not a personâs inherent capacity but how much of that capacity is currently available for use.
Poverty itself taxes the mind.
Scarcity doesnât just lead us to overborrow or to fail to invest. It leaves us handicapped in other aspects of our lives. It makes us dumber. It makes us more impulsive. We must get by with less mind available, with less fluid intelligence and with diminished executive controlâ making life that much harder.
- Scarcity taxes bandwidth by loading the mind with concerns, reducing cognitive capacity like fluid intelligence.
- Tests demonstrate that financial scarcity reduces cognitive performance, similar to the effects of sleep deprivation.
- Scarcity also inhibits executive control, leading to impulsive decisions and reduced self-control.
- Scarcity directly reduces bandwidthânot a personâs inherent capacity but how much of that capacity is currently available for use.
- Scarcity doesnât just lead us to overborrow or to fail to invest; it makes us dumber and more impulsive.
The Prevalence of Mind Wandering
- Scarcity increases mind wandering, where internal distractions impede the ability to concentrate.
- Experiments have shown how stimuli related to scarcity can distract the mind, affecting performance.
Behavioral Experiments and Findings
- Experiments with stimuli like word searches show how scarcity-related distractions impair focus in tasks.
- Various experiments measure how personal context, like financial status or distractions, affects cognitive tasks.
Poverty and Effective Bandwidth
But then, halfway through the meeting, things change. There is, as Gersick calls it, a midcourse correction. The group realizes that time is running out and becomes serious.
This is a basic feature of the mind: focusing on one thing inhibits competing concepts. Inhibition is what happens when you are angry with someone, and it is harder to remember their good traits: the focus on the annoying traits inhibits positive memories.
We are saying that all people, if they were poor, would have less effective bandwidth.
- Experiments indicate that scarcity causes reduced mental capacity regardless of inherent intelligence.
- Poverty itself taxes the mind, leading to lower effective bandwidth and reduced executive control.
- All people, if they were poor, would have less effective bandwidth.
Other Forms of Scarcity
- Scarcity is not unique to financial poverty but also occurs with dieting and loneliness, impacting cognitive performance.
- Experiments show how perceived scarcity like loneliness affects mental bandwidth, executive control, and impulsivity.
All Highlights
These meetings could not be more distinct. But in one way they are all the same. They all begin unfocused, the discussions abstract or tangential, the conversations meandering and often far off topic. Simple points are made in lengthy ways. Disagreements are aired but without resolution. Time is spent on irrelevant details.
But then, halfway through the meeting, things change. There is, as Gersick calls it, a midcourse correction. The group realizes that time is running out and becomes serious.
This is a basic feature of the mind: focusing on one thing inhibits competing concepts. Inhibition is what happens when you are angry with someone, and it is harder to remember their good traits: the focus on the annoying traits inhibits positive memories.
Scarcity in one walk of life means we have less attention, less mind, in the rest of life.
Top-down attention cannot prevent bottom-up intrusions. 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.
scarcity directly reduces bandwidthâ not a personâs inherent capacity but how much of that capacity is currently available for use.
Poverty itself taxes the mind.
We are saying that all people, if they were poor, would have less effective bandwidth.
Scarcity doesnât just lead us to overborrow or to fail to invest. It leaves us handicapped in other aspects of our lives. It makes us dumber. It makes us more impulsive. We must get by with less mind available, with less fluid intelligence and with diminished executive controlâ making life that much harder.
Part Two: Scarcity Creates Scarcity
3. Packing and Slack
The chapter discusses how the concept of scarcity affects decision-making and resource management, using packing a suitcase as a metaphor. Scarcity makes us focus on trade-offs, while abundance allows for slack, freeing us from this need. Slack leads to inefficiency but provides room to fail without severe consequences. The poor experience compounding challenges due to scarcity, as their bandwidth is limited, increasing the cost of errors.
Packing and Slack
- Packing a large suitcase is often done carelessly because of the abundance of space, leading to inefficiency and slack.
- In contrast, packing a small suitcase requires methodical thinking and prioritization due to limited space, creating a metaphor for how scarcity forces us to focus and make trade-offs.
- Scarcity forces careful management of resources, while abundance creates slack, freeing us from the need to make trade-offs.
Trade-off Thinking
Scarcity leads us to borrow and pushes us deeper into scarcity.
An initial scarcity is compounded by behaviors that magnify it.
- Scarcity forces us to recognize trade-offs, as limited resources demand careful consideration of what is gained and what is forgone when making decisions.
- Those experiencing financial scarcity are more likely to think about trade-offs compared to those with abundance.
- Research in Boston and India showed that lower-income individuals more frequently considered trade-offs when making purchases, illustrating how scarcity influences cognitive processing.
Slack
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
- Slack, or unused resources, allows us to avoid trade-offs and sometimes leads to inefficiency and waste.
- Slack gives us the freedom to indulge in purchases without immediate concerns about trade-offs, resulting in inefficient use and accumulation of unused items.
- When resources are abundant, slack allows for flexibility and reduces the burden of choice, sometimes leading to procrastination or inefficient time use.
Room to Fail
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Tunnels limit everyoneâs vision.
- Slack provides a cushion against mistakes, allowing errors to have less severe consequences, as seen in scenarios of financial or time mismanagement.
- Without slack, those with limited resources face higher stakes when errors occur, as they have a larger impact on their overall well-being.
- Scarcity magnifies the cost of errors and increases opportunities for failure, as limited resources must be carefully managed.
All Highlights
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Scarcity leads us to borrow and pushes us deeper into scarcity.
Tunnels limit everyoneâs vision.
An initial scarcity is compounded by behaviors that magnify it.
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
4. Expertise
The chapter explores how scarcity influences decision making, highlighting the impact on perception, valuation of money, and expertise in managing resources. Behavioral economics concepts, illustrated through practical experiments, reveal that scarcity induces consistent valuation in the poor contrasting with affluent biases. Scarcity limits cognitive bandwidth, leading to tunneling and exacerbated shortages, yet it hones internal metrics for value judgment, affecting opportunity costs awareness.
Behavioral Economics and Perception
An initial scarcity is compounded by behaviors that magnify it.
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
- The story of Alex haggling over a rickshaw fare in Chennai illustrates how people often act on perceived fairness and relative valuation rather than absolute monetary values.
- People typically make irrational decisions regarding saving due to relative perception, as shown in the detour scenarios involving DVD players and laptops.
- Traditional economic models struggle because people value money subjectively, influenced by context and perception.
Effect of Scarcity on Decision Making
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
Scarcity leads us to borrow and pushes us deeper into scarcity.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
- Experiments revealed that scarcity affects decision making, as shown by different responses of people at a soup kitchen compared to commuters regarding travel for financial savings.
- People living in scarcity often have a stable internal evaluation of money's value compared to varying valuations by affluent individuals.
Scarcity-Induced Expertise
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Tunnels limit everyoneâs vision.
- Under scarcity, people become experts in valuing their resources, like the poor being consistent with value judgments, contrary to common biases observed among the well-off.
- Scarcity hones an expert internal metric for valuing money leading to more rational economic choices.
Perception and Opportunity Cost
- Perception studies reveal that background cues influence our value judgment as seen in classic illusions and the beer pricing experiment.
- Under scarcity, individuals are more attuned to opportunity costs, unlike affluent individuals who overlook such considerations.
Construal and Value Judgment
- People construct value from contextual cues which leads to inconsistent decision making, as revealed through resort and grocery store beer pricing scenarios.
- Affluent individuals often use local context to guide their price judgements, leading to inconsistent value assessments.
Tunneling and its Implications
- Tunneling, induced by scarcity, narrows focus and can lead to excessive borrowing and other behaviors that magnify scarcity.
- Scarcity reduces bandwidth, a vital resource that supports cognitive functions and decision making.
Understanding the Value of a Dollar
- Under abundance, people struggle with evaluating trade-offs, leading to misleading comparisons and manipulation.
- Frugality without real trade-offs leads to reliance on context for monetary evaluation.
Opportunity Costs
- Scarcity gives the poor a clearer understanding of opportunity costs, leading to more rational decision making compared to affluent economists.
All Highlights
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Scarcity leads us to borrow and pushes us deeper into scarcity.
Tunnels limit everyoneâs vision.
An initial scarcity is compounded by behaviors that magnify it.
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
5. Borrowing and Myopia
Scarcity influences decision-making, leading individuals to focus on immediate needs ('tunneling') and neglect future consequences. Payday loans exemplify this, offering short-term relief but deepening long-term financial strain. Experiments show scarcity impairs cognitive bandwidth, affecting planning and self-control, causing borrowing and neglect of future-important tasks. The problem isn't due to lack of education or self-control but the constraints of scarcity.
Sandra Harris and the Payday Loan Trap
- Sandra Harris, after facing financial scarcity, resorted to payday loans to pay her bills.
- She entered a cycle of borrowing to pay back previous loans, resulting in high fees and deeper debt.
- This story exemplifies how scarcity can trap individuals into short-term solutions that create long-term problems.
Tunneling and its Effects
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Scarcity leads us to borrow and pushes us deeper into scarcity.
Tunnels limit everyoneâs vision.
- Tunneling occurs when immediate scarcity focuses attention on present needs, neglecting future costs.
- People facing scarcity often borrow, as they fixate on immediate problems within their 'tunnel', ignoring future repercussions.
- This tunnel vision leads to decisions like payday loans that provide immediate relief but worsen future scarcity.
Artificial Scarcity Experiments
- Experiments with artificial scarcity show that people borrow impulsively when under pressure, similar to the poor borrowing money.
- In controlled experiments, those with less timeâthe 'poor'âare more focused but also more likely to borrow and end up worse in the long term.
- Borrowing under scarcity can help in the short term but often exacerbates future scarcity.
Scarcity and Bandwidth
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
- Scarcity taxes cognitive resources or bandwidth, impairing judgment and leading to poor financial decisions.
- Bandwidth is crucial for planning, self-control, and creative problem-solving, all of which scarcity reduces.
- The lack of bandwidth under scarcity makes it harder for individuals to plan for the future, increasing myopic behavior.
Neglecting the Future Due to Scarcity
An initial scarcity is compounded by behaviors that magnify it.
- When scaricity leads to tunneling, people tend to neglect important but non-urgent tasks that could prevent future issues.
- Just as payday loans solve immediate financial problems but worsen future difficulties, neglected maintenance or investment creates long-term costs.
- Whether managing time or money, scarcity often leads to decisions that save today at the expense of tomorrow.
All Highlights
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Scarcity leads us to borrow and pushes us deeper into scarcity.
Tunnels limit everyoneâs vision.
An initial scarcity is compounded by behaviors that magnify it.
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
6. The Scarcity Trap
The chapter discusses scarcity traps, where behaviors driven by scarcity worsen one's situation, using street vendors as a case study. It explores how tunneling and bandwidth limitations lead to a cycle of debt for the poor. Experiments show that even a debt-free start does not prevent returning to a scarcity trap due to a lack of buffers for shocks. The chapter extends the concept to social scarcity, suggesting scarcity is a contextual outcome manageable with appropriate strategies.
The Nature of the Scarcity Trap
Scarcity leads us to borrow and pushes us deeper into scarcity.
An initial scarcity is compounded by behaviors that magnify it.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
- The chapter illustrates the concept of a scarcity trap using the example of street vendors in Chennai, who remain perpetually in debt despite the possibility of becoming debt-free by saving a small amount each day.
- Scarcity traps occur when behavior exacerbates an existing state of scarcity, often due to borrowing, which is exacerbated by tunneling â focusing intensely on immediate, pressing needs at the cost of longer-term planning.
- Tunneling makes individuals pay high-interest loans because they are focused on present needs rather than future costs.
- Compounding interest makes it difficult for people to escape debt, as their actions trap them into a cycle of scarcity.
- Scarcity is not merely a lack of physical resources; it is also about the inefficient deployment of available resources.
Juggling and Bandwidth
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
- The chapter introduces the concept of juggling, where individuals focus only on the most immediate tasks due to scarcity, thus causing an accumulation of long-term problems.
- Being constantly one step behind creates a patchwork of obligations, making it harder to escape the cycle of scarcity.
- Scarcity taxes bandwidth, which is needed to make informed decisions and control impulses.
- Individuals in scarcity traps struggle with planning because their mental resources are exhausted on immediate crises.
- The poor often lack bandwidth due to the constant struggle to make ends meet.
Experiments and Evidence
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
- A study gave vendors in Chennai a debt-free start by clearing their debts. Initially, their incomes doubled, yet they eventually fell back into debt, demonstrating a pattern of behavior induced by scarcity.
- The experiment showed that even when given a fresh start, the lack of a buffer for shocks can pull individuals back into a scarcity trap.
- The chapter challenges traditional views that attribute the poor's borrowing habits to myopia or ineptitude, suggesting instead that the pressure of poverty itself incites borrowing.
Broader Implications and Solutions
Tunnels limit everyoneâs vision.
- Scarcity traps can be extended beyond finances to situations like loneliness, where over-focusing due to scarcity leads to poor social interactions.
- Choking in social scenarios or sports is an example of over-focus, where skilled individuals perform poorly when attention is too concentrated.
- The chapter suggests that the scarcity mindset is more of a contextual outcome and can potentially be managed or alleviated with the right interventions.
- Insurance, savings, and buffers against shocks can help individuals avoid falling back into scarcity traps.
All Highlights
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Scarcity leads us to borrow and pushes us deeper into scarcity.
Tunnels limit everyoneâs vision.
An initial scarcity is compounded by behaviors that magnify it.
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
7. Poverty
The chapter discusses how scarcity, particularly poverty, affects decision-making due to cognitive overload and lack of bandwidth. Unlike other forms of scarcity, poverty offers no discretion, exacerbating its impact. Scarcity leads to tunneling, borrowing, and behaviors that worsen the situation. Poverty taxes bandwidth, affecting behavior across various facets of life, from parenting to medication adherence, and ultimately underpins many challenges associated with poverty.
Psychology of Scarcity
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Scarcity leads us to borrow and pushes us deeper into scarcity.
An initial scarcity is compounded by behaviors that magnify it.
- Scarcity evokes a unique psychology irrespective of its source.
- Common ingredients like tunneling and bandwidth tax play out differently depending on scarcity type.
- Lack of slack and borrowing are features in financial scarcity, different from other types.
Lack of Discretion in Extreme Scarcity
Tunnels limit everyoneâs vision.
- Poverty is different because there is no discretion to choose less scarcity.
- Discretion limits how much scarcity can affect well-being.
Bandwidth and Its Effects
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
- The poor lack bandwidth, affecting decision-making and daily functions.
- Bandwidth limits ability to exercise self-control and engage in productive tasks.
All Highlights
To explain why the poor borrow excessively, we do not need to appeal to a lack of financial education, the avarice of predatory lenders, or an oversized tendency for self-indulgence. To explain why the busy put off things and fall behind, we do not need to appeal to weak self-control, deficient understanding, or a lack of time-management skills. Instead, borrowing is a simple consequence of tunneling. To test this idea, we resort to one of our favorite tools: creating artificial scarcity in the lab.
These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.
Scarcity leads us to borrow and pushes us deeper into scarcity.
Tunnels limit everyoneâs vision.
An initial scarcity is compounded by behaviors that magnify it.
One of the things the poor lack most is bandwidth. The very struggle of making ends meet leaves them with less of this vital resource.
Bandwidth underpins nearly every aspect of our behavior. We use it to calculate our odds of winning in poker, to judge other peopleâs facial expressions, to control our emotions, to resist our impulses, to read a book, or to think creatively. Nearly every advanced cognitive function relies on bandwidth.
Part Three: Designing for Scarcity
8. Improving the Lives of the Poor
The chapter discusses the parallels between pilot errors due to cockpit design and errors made by the poor in navigating complex social programs. The text suggests re-evaluating poverty intervention strategies through the lens of behavioral economics, recognizing bandwidth as an often-overlooked crucial resource. The emphasis is on designing supportive, fault-tolerant systems that recognize human error and constraints, such as scarcity and bandwidth, to improve the effectiveness of poverty alleviation programs.
Pilot Error and Cockpit Design
This experience transformed how cockpits are designed. Chapanis and others came to realize that many pilot errors were really cockpit errors. Until then, the focus had been on training pilots and ensuring alertness, on producing âexcellent pilotsâ who make few mistakes. But Chapanisâs conclusions changed this. Of course pilots must be trained; of course you must select for the best. But no matter how well you train them or pick them, they will make mistakes, especially if put in confounding contexts.
Planes are much safer today not just because we have built better wings or engines but also because we have gotten better at handling human error.
- Lieutenant Alphonse Chapanis discovered that many pilot errors were due to cockpit design rather than pilot errors.
- He changed the focus from creating excellent pilots to designing cockpits that reduce errors.
- Chapanis solved the wheel retraction issue by altering the landing gear lever, demonstrating that improved design can mitigate mistakes.
Handling Poverty with Behavioral Insights
Whether it is in the trade-offs that people are led to make, the way education is structured, the incentives that are created, or how we handle failure, understanding the psychology of scarcity can dramatically alter the way social programs are designed.
It is a way to build human capital of the deepest kind: it creates bandwidth.
All this reflects a deeper, and somewhat different, perspective on poverty. It focuses not just on the poorâs obvious scarce resource, income, but on that other, less palpable but equally critical resource, bandwidth. Considerations of bandwidth suggest that something as simple as giving cash at the right time can have big benefits.
- Analyzing poverty with a different approach by evaluating social programs through the lens of psychology, especially the psychology of scarcity.
- Instead of relying solely on improving personal skills, programs can be designed to be more fault-tolerant, recognizing that mistakes are inevitable due to bandwidth constraints.
- Understanding and altering incentives can help improve the effectiveness of anti-poverty programs.
- Bandwidth is a crucial and often overlooked resource, with considerations like providing cash assistance at the right time facilitating cognitive capacity.
Bandwidth and Its Impact on Behavior
It found that people spent 20 percent more time cyberloafingâ searching the web for unrelated contentâ for every hour of lost sleep on those evenings. And that is just one night of sleep.
People overlook bandwidth. When youâre busy and must decide what to do next, you might take into account the time you have and how long it will take you, but you rarely consider your bandwidth.
- The chapter emphasizes the scarcity of mental bandwidth among the poor and its critical impact on decision-making and actions.
- Just as physical resources are managed, bandwidth also needs to be preserved and maximized to help the poor use their mental capacity efficiently.
All Highlights
This experience transformed how cockpits are designed. Chapanis and others came to realize that many pilot errors were really cockpit errors. Until then, the focus had been on training pilots and ensuring alertness, on producing âexcellent pilotsâ who make few mistakes. But Chapanisâs conclusions changed this. Of course pilots must be trained; of course you must select for the best. But no matter how well you train them or pick them, they will make mistakes, especially if put in confounding contexts.
Planes are much safer today not just because we have built better wings or engines but also because we have gotten better at handling human error.
Whether it is in the trade-offs that people are led to make, the way education is structured, the incentives that are created, or how we handle failure, understanding the psychology of scarcity can dramatically alter the way social programs are designed.
It is a way to build human capital of the deepest kind: it creates bandwidth.
All this reflects a deeper, and somewhat different, perspective on poverty. It focuses not just on the poorâs obvious scarce resource, income, but on that other, less palpable but equally critical resource, bandwidth. Considerations of bandwidth suggest that something as simple as giving cash at the right time can have big benefits.
It found that people spent 20 percent more time cyberloafingâ searching the web for unrelated contentâ for every hour of lost sleep on those evenings. And that is just one night of sleep.
People overlook bandwidth. When youâre busy and must decide what to do next, you might take into account the time you have and how long it will take you, but you rarely consider your bandwidth.
9. Managing Scarcity in Organizations
The chapter discusses how scarcity affects decision-making in organizations, using examples like St. Johnâs Hospital, which improved efficiency by creating slack for emergencies. It explores the importance of slack, often undervalued due to a focus on efficiency. The firefighting trap is highlighted as a consequence of scarcity, where urgent matters overshadow long-term improvements. Managing bandwidth, rather than just increasing work hours, is identified as a key strategy for avoiding the pitfalls of scarcity and ensuring sustainable productivity.
Managing Scarcity in Organizations
- St. Johnâs Regional Health Center faced a scarcity trap with surgeries exceeding available operating rooms.
- An adviser from the Institute for Healthcare Improvement suggested leaving one operating room unused for unplanned surgeries.
- This strategy reduced inefficiency, increased surgical volume, and highlighted the need for planning to manage scarcity effectively.
Underappreciated Slack
This experience transformed how cockpits are designed. Chapanis and others came to realize that many pilot errors were really cockpit errors. Until then, the focus had been on training pilots and ensuring alertness, on producing âexcellent pilotsâ who make few mistakes. But Chapanisâs conclusions changed this. Of course pilots must be trained; of course you must select for the best. But no matter how well you train them or pick them, they will make mistakes, especially if put in confounding contexts.
Planes are much safer today not just because we have built better wings or engines but also because we have gotten better at handling human error.
- St. Johnâs case showed the importance of slack, often undervalued in organizations.
- Lack of slack can lead to inefficiencies, similar to traffic jams on roads at near-full capacity.
- Highlighting the balance between efficiency and the need for slack to manage unexpected shocks.
Firefighting Trap
Whether it is in the trade-offs that people are led to make, the way education is structured, the incentives that are created, or how we handle failure, understanding the psychology of scarcity can dramatically alter the way social programs are designed.
- Organizations often fall into a âfirefighting trapâ where urgent tasks overshadow important structural improvements.
- The lack of slack exacerbates this situation, making it hard to focus on long-term improvements.
- Recovery involves building slack and managing priorities to prevent continual firefighting.
Managing the Right Scarce Resource
It found that people spent 20 percent more time cyberloafingâ searching the web for unrelated contentâ for every hour of lost sleep on those evenings. And that is just one night of sleep.
People overlook bandwidth. When youâre busy and must decide what to do next, you might take into account the time you have and how long it will take you, but you rarely consider your bandwidth.
- Recognizing scarcity in any resource, including bandwidth, is crucial for effective management.
- Overworking can reduce cognitive bandwidth, leading to mistakes, as demonstrated by the Mars Orbiter crash.
- Organizations should focus on allowing time for recovery and managing bandwidth instead of merely increasing work hours.
All Highlights
This experience transformed how cockpits are designed. Chapanis and others came to realize that many pilot errors were really cockpit errors. Until then, the focus had been on training pilots and ensuring alertness, on producing âexcellent pilotsâ who make few mistakes. But Chapanisâs conclusions changed this. Of course pilots must be trained; of course you must select for the best. But no matter how well you train them or pick them, they will make mistakes, especially if put in confounding contexts.
Planes are much safer today not just because we have built better wings or engines but also because we have gotten better at handling human error.
Whether it is in the trade-offs that people are led to make, the way education is structured, the incentives that are created, or how we handle failure, understanding the psychology of scarcity can dramatically alter the way social programs are designed.
It is a way to build human capital of the deepest kind: it creates bandwidth.
All this reflects a deeper, and somewhat different, perspective on poverty. It focuses not just on the poorâs obvious scarce resource, income, but on that other, less palpable but equally critical resource, bandwidth. Considerations of bandwidth suggest that something as simple as giving cash at the right time can have big benefits.
It found that people spent 20 percent more time cyberloafingâ searching the web for unrelated contentâ for every hour of lost sleep on those evenings. And that is just one night of sleep.
People overlook bandwidth. When youâre busy and must decide what to do next, you might take into account the time you have and how long it will take you, but you rarely consider your bandwidth.
10. Scarcity in Everyday Life
The chapter explores the impact of scarcity on everyday decision-making and its influence on time management, savings, and resource allocation. By examining how scarcity affects cognitive bandwidth and creates 'tunneling,' the text suggests interventions like reminders, changing defaults, and automation to mitigate these effects. Insights into planning for future scarcity through linked decisions and economizing bandwidth to improve outcomes are emphasized. Strategies to overcome neglect and reduce snags in decision-making are presented as ways to improve both individual and systemic outcomes in resource management.
Scarcity in Scheduling and Time Management
This experience transformed how cockpits are designed. Chapanis and others came to realize that many pilot errors were really cockpit errors. Until then, the focus had been on training pilots and ensuring alertness, on producing âexcellent pilotsâ who make few mistakes. But Chapanisâs conclusions changed this. Of course pilots must be trained; of course you must select for the best. But no matter how well you train them or pick them, they will make mistakes, especially if put in confounding contexts.
- Doctors and professionals often run late due to tightly packed schedules without some slack time.
- A small intervention, like an assistant reminding of time, can prevent the scarcity trap of tunneled focus.
- This intervention changes the environment rather than trying to change the psychology of scarcity.
Tunneling and Savings
- Tunneling causes important tasks, like savings, to be overlooked as they fall outside the urgent 'tunnel'.
- Interventions like reminders can be reintroduced into the tunnel to increase savings behavior.
- Financial decisions like loans naturally appear in the tunnel but savings do not, necessitating interventions.
Neglect and Automation
All this reflects a deeper, and somewhat different, perspective on poverty. It focuses not just on the poorâs obvious scarce resource, income, but on that other, less palpable but equally critical resource, bandwidth. Considerations of bandwidth suggest that something as simple as giving cash at the right time can have big benefits.
People overlook bandwidth. When youâre busy and must decide what to do next, you might take into account the time you have and how long it will take you, but you rarely consider your bandwidth.
- Automatic deductions ensure ongoing savings without requiring frequent attention, reducing neglect.
- Changing defaults, like automatically enrolling employees into savings plans, can combat neglect.
- Automation minimizes the need for vigilance in recurring tasks, making it easier to follow through.
Linking Decisions to Better Outcomes
- Setting up commitments to start at a later date, like increasing savings with future raises, utilizes a willingness to save when scarcity isn't pressing.
- This method harnesses the lack of appreciation for future scarcity to encourage positive commitments.
Economizing Bandwidth
It is a way to build human capital of the deepest kind: it creates bandwidth.
It found that people spent 20 percent more time cyberloafingâ searching the web for unrelated contentâ for every hour of lost sleep on those evenings. And that is just one night of sleep.
- Scarcity taxes bandwidth, affecting decision-making and information processing.
- Clear, simplified information can conserve cognitive bandwidth, as shown in payday loan studies.
- Program design should consider timing to match periods of higher bandwidth with complex tasks or education.
Snags and Their Impacts
- Small barriers or snags, like form filling for financial aid, can drastically reduce participation in beneficial programs.
- Reducing these barriers can increase uptake of aid without creating additional costs.
The Problem of Abundance
Planes are much safer today not just because we have built better wings or engines but also because we have gotten better at handling human error.
Whether it is in the trade-offs that people are led to make, the way education is structured, the incentives that are created, or how we handle failure, understanding the psychology of scarcity can dramatically alter the way social programs are designed.
- Procrastinating on the use of abundant resources often leads to scarcity before deadlines, leading to poorer outcomes.
- Establishing structured deadlines or payments can avoid these abundance-then-scarcity cycles.
- Buffer stocks or emergency reserves should be prioritized during periods of abundance.
All Highlights
This experience transformed how cockpits are designed. Chapanis and others came to realize that many pilot errors were really cockpit errors. Until then, the focus had been on training pilots and ensuring alertness, on producing âexcellent pilotsâ who make few mistakes. But Chapanisâs conclusions changed this. Of course pilots must be trained; of course you must select for the best. But no matter how well you train them or pick them, they will make mistakes, especially if put in confounding contexts.
Planes are much safer today not just because we have built better wings or engines but also because we have gotten better at handling human error.
Whether it is in the trade-offs that people are led to make, the way education is structured, the incentives that are created, or how we handle failure, understanding the psychology of scarcity can dramatically alter the way social programs are designed.
It is a way to build human capital of the deepest kind: it creates bandwidth.
All this reflects a deeper, and somewhat different, perspective on poverty. It focuses not just on the poorâs obvious scarce resource, income, but on that other, less palpable but equally critical resource, bandwidth. Considerations of bandwidth suggest that something as simple as giving cash at the right time can have big benefits.
It found that people spent 20 percent more time cyberloafingâ searching the web for unrelated contentâ for every hour of lost sleep on those evenings. And that is just one night of sleep.
People overlook bandwidth. When youâre busy and must decide what to do next, you might take into account the time you have and how long it will take you, but you rarely consider your bandwidth.
Conclusion
The conclusion discusses the concept of cognitive bandwidth, emphasizing its impact on decision-making and productivity. It suggests that societal well-being could be enhanced by measuring and understanding cognitive capacity fluctuations, advocating for changes in social programs and work environments to prioritize bandwidth. The chapter also illustrates how both scarcity and abundance affect behavior, influencing future scarcity.
The Bandwidth Tax
People overlook bandwidth. When youâre busy and must decide what to do next, you might take into account the time you have and how long it will take you, but you rarely consider your bandwidth.
- The authors noticed their Scramble game scores dropped during tense writing periods, illustrating the impact of the bandwidth tax.
- Busy individuals often neglect to account for cognitive bandwidth, focusing instead on time.
- People frequently overlook their bandwidth, affecting their decision-making.
Fluctuating Cognitive Capacity
- We manage our schedules for time but not for fluctuating cognitive capacity.
- Social scientists rarely measure the cognitive dimensions of societal issues, focusing on material dimensions instead.
Impact of Bandwidth on Society
- Cognitive capacity affects productivity, requiring effective decision-making and learning, impacting broader economic growth.
- Personal bandwidth impacts various life aspects beyond economics, including parenting and interpersonal relationships.
Measuring Bandwidth
Whether it is in the trade-offs that people are led to make, the way education is structured, the incentives that are created, or how we handle failure, understanding the psychology of scarcity can dramatically alter the way social programs are designed.
- Proposing Gross National Bandwidth measures could help analyze cognitive fluctuations in societies.
- Such measures could better evaluate social programs and public policies, potentially improving wider cognitive well-being.
Rethinking Social Programs and Work Environments
It is a way to build human capital of the deepest kind: it creates bandwidth.
All this reflects a deeper, and somewhat different, perspective on poverty. It focuses not just on the poorâs obvious scarce resource, income, but on that other, less palpable but equally critical resource, bandwidth. Considerations of bandwidth suggest that something as simple as giving cash at the right time can have big benefits.
- Programs should address cognitive impacts like bandwidth in addition to traditional outcomes like reemployment.
- Employers could improve productivity by offering financial solutions to enhance their employees' bandwidth.
The Psychology of Abundance
- Abundance can lead to procrastination, contributing to scarcity-induced stress at deadlines.
- Past abundance behaviors can create future scarcity challenges, relevant for both individuals and economies.
All Highlights
This experience transformed how cockpits are designed. Chapanis and others came to realize that many pilot errors were really cockpit errors. Until then, the focus had been on training pilots and ensuring alertness, on producing âexcellent pilotsâ who make few mistakes. But Chapanisâs conclusions changed this. Of course pilots must be trained; of course you must select for the best. But no matter how well you train them or pick them, they will make mistakes, especially if put in confounding contexts.
Planes are much safer today not just because we have built better wings or engines but also because we have gotten better at handling human error.
Whether it is in the trade-offs that people are led to make, the way education is structured, the incentives that are created, or how we handle failure, understanding the psychology of scarcity can dramatically alter the way social programs are designed.
It is a way to build human capital of the deepest kind: it creates bandwidth.
All this reflects a deeper, and somewhat different, perspective on poverty. It focuses not just on the poorâs obvious scarce resource, income, but on that other, less palpable but equally critical resource, bandwidth. Considerations of bandwidth suggest that something as simple as giving cash at the right time can have big benefits.
It found that people spent 20 percent more time cyberloafingâ searching the web for unrelated contentâ for every hour of lost sleep on those evenings. And that is just one night of sleep.
People overlook bandwidth. When youâre busy and must decide what to do next, you might take into account the time you have and how long it will take you, but you rarely consider your bandwidth.