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A book about scarcity

I finished a book Scarcity: Why Having Too Little Means So Much by Sendhil Mullainathan and Eldar Shafir. The premise of their research is that experiencing any kind of scarcity negatively affects our lives and communities. While this seems intuitive, it touches so many organizational situations and human conditions that I was left genuinely surprised.

What is scarcity

Being short on money is what immediately comes to mind. It’s a very common one, but far from the only type of scarcity.

  • Dieters have to constantly watch over a limited number of calories.
  • Constant noise and interruptions make concentration and focus scarce. Think noisy offices and gadget notifications.
  • Lonely people are missing affection and attention.
  • Sleep deprivation.
  • Busy people are struggling to find more time, but never seem to succeed.

The consequences of scarcity are really disturbing:

… a school in New Haven was located next to a noisy railroad line. To measure the impact of this noise on academic performance, two researchers noted that only one side of the school faced the tracks, so the students in classrooms on that side were particularly exposed to the noise but were otherwise similar to their fellow students. They found a striking difference between the two sides of the school. Sixth graders on the train side were a full year behind their counterparts on the quieter side. Further evidence came when the city, prompted by this study, installed noise pads. The researchers found that this erased the difference: now students on both sides of the building performed at the same level. A whole host of subsequent studies have shown that noise can hurt concentration and performance. Even if the impact of noise does not surprise you, the size of the impact (a full school year level at sixth grade) should.

We found that farmers performed much worse before harvest than after harvest. The same farmer fared worse on fluid intelligence and executive control when he was poor (preharvest) than when he was rich (postharvest).

Dieters, when doing anything, should find they have fewer mental resources because they are partly preoccupied with food.

Scarcity doesn’t 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 control—making life that much harder.

Acording to the authors, farmers display very different mental capacities just before and just after a harvest. Credits cgiarlimate.

To use authors’ wording, poor people are not necessarily poor because they’re dumb, but they can be dumb because they’re poor. It’s a vicious cycle that makes it very hard to escape.

This doesn’t happen only to “other” people; it can happen to everyone and that’s why it’s so dangerous. Researchers took a group and randomly split it in two. Some people were assigned to poor and others to rich participants. “The poor” showed behavior described here and “the rich” prospered, even though all were in the same socio-economic situation hours earlier.

Slack

Handling scarcity is much easier if a person has slack. Slack can be a lot of different things:

  • A rainy day fund in a bank.
  • Allowing more time between travel segments or business meetings.
  • A busy executive having an assistant on-call to help with unexpected changes and interruptions.

Slack allows us ease of mind and, unexpectedly, better performance in the long run. If there is no slack and scarcity is not self-imposed, it becomes poverty.

Dieters can take a break from their diet. The busy can take vacations. One cannot take a vacation from poverty. Simply deciding not to be poor—even for a bit—is never an option.

This discussion clarifies what we mean by poverty. We mean cases of economic scarcity where changing what you want, or think you need, is simply not viable.

There is a poverty example for dieters too. If a person is suffering from a medical condition that limits what the person can eat, it’s also not an option to stop.

Borrowing

Borrowing by itself is not bad, but the ones who need it the most are usually not in the right frame of mind to make a good and informed decision about it.

In fact, as far as personality traits go these people are anything but myopic; rather, it is the context of scarcity that makes us all act that way. Tunnels limit everyone’s vision.

And to make matters worse, humans in general are terrible at valuation over long periods of time. We overvalue immediate benefits at the expense of future ones: this is why it’s hard to save, to got to the gym or do your school assignments early.

The book provides more examples of borrowing money and adverse consequences of it, but another issue grabbed my attention. It’s probably one of the biggest problems in our industry—technical debt.

When working to finish things quickly, the engineers tunneled. Inside their tunnel, a quick fix was just the thing needed. Cutting corners was the perfect solution; the cost would only show up later. Much like an expensive loan, a hastily patched solution looks attractive within the tunnel. It saves us something today even as it creates greater expenses in the future.

This often happens because resources were poorly allocated:

As one manager puts it: “If you look at our resource allocation on traditional projects, we always start late and don’t put people on the projects soon enough … then we load as many people on as it takes … the resource allocation peaks when we launch the project.” Based on their years of study, the researchers conclude, “There are few images more common in current discussions of R&D management than that of the overworked engineering team putting in long hours to complete a project in its last days before launch.” Firefighting does not just lead to errors; it leads to a very predictable kind of error: important but non urgent tasks are neglected.

Is all hope lost?

No, it’s not. Dissecting and understanding a problem is the first step in solving it. The authors provide some ideas and directions how their findings can help with organizational and global issues. Most of them would be categorized as common sense, but they often have a twist that makes them really effective.

Consider the following thought experiment. In an attempt to curb predatory lending, one state forces payday lenders to charge lower fees—say, $25 instead of $50 on a $200 loan. Assume the industry remains profitable and survives. In another state, a different program is created: fees remain at $50, but only $25 goes to the lender; the remaining $25 goes into an account in the borrower’s name. Once $200 has been accumulated in this account—in this case, after eight loans—the person no longer needs to borrow. When she needs a loan, she can use these savings instead. In effect, by saving $25 of every $50 they would have paid for fees, the borrowers can quickly become “lenders to themselves.”

The book goes a bit too far to portray everything as a scarcity problem in my opinion. These problems influence everyone at some point, but character also plays a role in how strong this effect will be. Nevertheless, I recommend it to everyone interested in human behavior, especially to designers and managers. Being reminded once again that people make bad decisions, not only because of their flawed characters, but also because of circumstance, is a powerful tool in building humane products and services.


Don’t miss this one:
Year in review 2014

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