Books Economics

Recent Read: “Scarcity: The New Science of Having Less and How It Defines Our Lives”

What do a harried college student trying to finish a paper at the last moment, a poor farmer in India trying to survive until the next harvest, and a lonely German man on a dating web site all have in common? The answer to this intriguing question, according to Sendhil Mullainathan (a Harvard behavioral economist) and Eldar Shafir (an MIT behavioral psychologist), is scarcity. In all these cases, the people in question lack something: time, in the first case; money in the second; and companionship, in the third. Of course, we have all experienced periods of scarcity and know this feeling can be a negative or even destructive one. But what exactly is scarcity? Is it something that can be measured and analyzed? How does its presence affect analysis and decision making? These are the questions the authors of Scarcity: The New Science of Having Less and How It Defines Our Lives set out to answer and, despite the book’s one major flaw, I think they succeed.

9781250056115The main thesis of Scarcity can be distilled to four principal arguments. First, scarcity is the real or perceived lack of something, e.g., time, money, attention, love, etc., and it has two major dimensions. The first dimension is what they term a “physical” constraint. In other words, if you are poor, you have the very real physical constraint of not having enough money in they bank. If you are a project manager running out of time, your physical constraint is the reality of the calendar, which is slowly increasing your scarcity with each tick of the clock. However, scarcity also has a psychological dimension, which is really what this book is about. As the authors note:

When scarcity captures our attention, it changes how we think — whether it is at the level of milliseconds, hours, or days and weeks. By staying at top of mind, it affects what we notice, how we weigh our choices, how we deliberate, and ultimately what we decide and how we behave. When we function under scarcity, we represent, manage, and deal with problems differently.

The second argument explains just how we think differently. We think differently because scarcity creates two forces in our minds, one generally positive and one generally negative. The positive effect is what they call the focus dividend. This is an easy concept to grasp, since anyone who has been in an aimless meeting that suddenly turned productive as time ran out has experienced the focus dividend. The same could be said of anyone who experienced a period of high performance on a project as a go-live approached. The focus dividend is when scarcity, once recognized, leads us to understand the urgency of a task or the value of a moment and helps us to reach a higher level of performance or appreciation. This, then, is the good side of scarcity. As the authors, note, “when time is short, you get more out of it, be it work or pleasure.”

Scarcity, however, has a much more powerful negative effect, which is the flip side of focus and something the authors call tunneling. Tunneling occurs when the focus is so strong that it blocks out other important data that should be entering the mind during the time of scarcity, i.e., it imposes a “bandwidth tax” on our processing abiltiies. To illustrate this point, the authors note that firefighters are often killed in crashes on the trip to a fire, because they are not wearing seat belts. What may seem carelessness is, the authors believe, the tunneling effect on a person with a scarcity of time, since there are many things that firefighters must do on the way to the fire: study the structure, analyze the possible cause of the fire, decided on entry and exit strategies, etc. With only a limited amount of time, the fire imposes a very high bandwidth tax on the firefighter’s brain, focusing it on the fire and tunneling outthe need to buckle up. This is the dangerous side of scarcity, claim the authors, since “a seat belt that never crosses your mind cannot be buckled.”

The final argument they make has the widest implications, and it is that, since the negative effects of tunneling are often often stronger than the positive effects of the focus dividend, scarcity begets more scarcity. This what they call the scarcity trap, and we have all seen it: the poor person who gets poorer over time, the company that makes increasingly worse decisions as it fails in the marketplace, or the general who makes a series of disastrous decisions as the battle turns against him.

In their book, Shafir and Mullainathan do a great job of explaining these four arguments through clear and careful prose (aimed at a general reader) and also the ways in which these forces shape economic and social phenomena. When seen through the lens of scarcity, rural farmers who run out of money half-way through the year suddenly make more sense, as does the failure of many training programs for inner-city poor. We also see more clearly why people who are always behind schedule and over-worked never “catch up” and why so many people fail to save for their retirement. This part of the book, though a bit repetitive, is excellent, and should be required reading for anyone in business especially, since scarcity is a part of every job and every company, sometimes constantly. Indeed, the most important practical application of their work is in what they call “designing for scarcity.”

Designing for scarcity is the idea that managers or policy makers install anti-scarcity mechanisms into projects and social programs. One such idea is slack, which is a key way to avoid the scarcity trap. Slack refers to extra time or money added to a project with no specific scope or use at the start. Slack is a “hedge” in finance terms, and it is a reserve of some resource that is put in place, ahead of scarcity, to fight against the emergence of scarcity once the effort is under way. This may sound like “contingency” but its a much more sophisticated idea than simply adding a “cushion.” Slack, when done right, is a specific design that requires as much thought and analysis as the plan itself, and that is a rare thing in most projects and programs. Another idea they present is what I would call using “hurdle” rather than “finish line” planning method. In hurdle planning, a project is laid out as a series of many discrete “mini-projects,” rather than one large effort with a finish line months or years down the road. Hurdle planning, of which I am a strong supporter, reduces the chance that time scarcity emerges, and thus also reduces the possibility that tunneling will lead to bad decisions as a large, overwhelming deadline approaches.

For the most part, Scarcity is a solid piece of research and analysis that changed the way I think about this concept, which is about the best (and rarest) thing I can say about a business book. The part of the book that is not so strong is their argument that scarcity is a new “science.” They keep repeating this claim, as if saying it over and again will make it so, but in this position their arguments and data, at least at this point, are not so strong. Certainly, scarcity is, as they show, a psychological and economic condition that needs much more study and analysis, so that its effects can be considered more fully when designing everything from project plans in companies to poverty relief at multi-national organizations. But to say that it is a new science was premature. Ironically, I often got the sense that Mullainathan and Shafir may have rushed this book to print, hoping to stake the claim to being innovators in the study of scarcity, without having prepared fully their data and arguments. As The Economist put it wryly, it’s “easy to enjoy the book’s many vignettes and insights, leaving it to others with more bandwidth to fit it all together.”

You should not let that last criticism stop you from reading this book, however. Anyone in business or economics should read it. CEO’s and college professors should read it. In reality, anyone who wishes they had more of anything should read it. That wish for more may be driving us to great success in our careers. But it may also, as the authors carefully show us, be sowing the seeds of our future failure.


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