Scarcity: Why Having Too Little Means So Much

Mullainathan, an economist, and Shafir, a psychologist, argue that scarcity of any resource, whether money, time, food or social connection, produces a common psychological state that impairs decision-making, and that this impairment is a consequence of the scarcity rather than a cause of it.

Their central mechanism is bandwidth. Scarcity captures attention involuntarily, which produces a focus dividend, meaning better performance on the immediate scarce dimension, and simultaneously reduces the cognitive capacity available for everything else. They report experiments in which participants primed to think about a financial problem performed worse on cognitive tests, with effects they compare to a night's lost sleep, and field work with Indian sugarcane farmers who performed better on the same tests after harvest than before it, when the same individuals were financially constrained.

Their related concept is tunnelling, meaning that scarcity produces neglect of anything outside the immediate problem, including maintenance, planning and opportunities with delayed returns. This explains behaviour that appears irrational from outside, including borrowing at high rates, skipping preventive expenditure and missing deadlines.

Slack, meaning unused capacity, is what allows people to absorb shocks and to make errors without consequence, and they argue that its absence rather than any characteristic of poor people explains much of the observed behaviour. Their policy implications include designing programmes that economise on the bandwidth of the people using them. Some of the priming experiments have replicated weakly and the effect sizes reported are contested. The sugarcane farmer study is the strongest evidence and has been challenged on sample and analysis. The bandwidth framing has held up better than the specific measurements.