Scarce tactics

Scarcity: Why Having Too Little Means So Much, by Sendhil Mullainathan and Eldar Shafir, Allen Lane, RRP£20/Times Books, RRP$28, 304 pages

Here is a flawed but intriguing book with a compelling thesis: being short of time is fundamentally similar to being short of money, or friends, or food, or indeed being short of space when packing for a trip. In each case, the feeling of scarcity comes to the front of the mind. It makes us focus on the immediate problem, which can make us remarkably effective – but also over-anxious, short-termist or blinkered.

We learn on the very first page of Scarcity that Sendhil Mullainathan – professor of economics at Harvard and one of my favourite economic thinkers – is extremely busy: “the past-due pile of life was growing dangerously close to toppling.” In the 300-odd pages that follow, he and his co-author Eldar Shafir, professor of psychology and public affairs at Princeton, explain that people in that sort of situation make hasty, distracted and ill-advised decisions, which may explain certain curiosities about the book itself.

Let’s get the criticism out of the way first: the book is full of chatty attempts to coin new buzzwords. We discover that people who suffer from lack of “slack” have to pay the “bandwidth tax”. As a consequence, they may start “tunneling”, and if they “tunnel” repeatedly then the “tunneling” will turn into “juggling”.

Scarcity is also poorly balanced. More than half the book outlines the psychological effects of scarcity, and what at first is a fun jaunt through some intriguing experiments soon feels lengthy, repetitive and confusing. The concluding chapters, with suggestions for policy, management and self-help, are interesting but brief and often half-baked. We measure gross national product, write the authors, so “Why not also measure Gross National Bandwidth?” To ask that question is to answer it.

Yet while Scarcity frustrates, it also fascinates. The idea that there’s a basic similarity to all forms of scarcity, and that similarity manifests itself in the way we think, has a touch of Gladwellian genius about it: somehow it manages to be obvious yet original at the same time.

In one experiment, the authors asked Princeton undergraduates to play a TV gameshow under controlled conditions. Some were made “rich”, with three times the time allocation to answer questions. The “poor” used their resources more effectively, scoring more points per second than the rich.

Then the experimenters introduced a wrinkle: both rich and poor were given access to the equivalent of payday loans, borrowing time from future rounds to use immediately, at punitive rates. The “rich” hardly bothered; the “poor” made extensive use of this loan-sharkery and earned far less as a result.

This is the kind of result – Scarcity is full of them – that should make us think differently about poverty. The “poor” relied on the payday loans not because of fecklessness or stupidity (they were Princeton undergrads, exactly the same as the “rich”) but because of the context in which they found themselves. And they managed to be penny-wise and pound-foolish because of the way scarcity forced them to focus too closely on the problem at hand.

Mullainathan and Shafir point out that the scarcity perspective explains the effectiveness of fashionable “nudge” approaches, which minimise the cognitive demands on people whose attention is elsewhere. It also explains the failings of over-broad policies such as a lifetime limit on welfare claims, introduced in the US: the cap simply seems irrelevant to most claimants, until suddenly it looms and it’s too late. The policy “penalizes but fails to motivate”.

The authors offer some alternatives. For instance, they suggest a payday loan and savings account rolled into one: the high fees from the payday loan would be split between the lender and a savings account in the name of the borrower. Each hasty grasp for short-term cash builds long-term financial resources. Clever – but would it work? Mullainathan has run rigorous trials of such policy interventions before; it’s not clear why he hasn’t tried this one. Did he run out of time?

The case of the St John’s Regional Health Center, an acute care hospital in Missouri, is particularly memorable: always short of operating-theatre space, always rearranging scheduled operations when emergency cases came in, the hospital’s fortunes were transformed when it switched to a policy of always leaving one theatre empty in case of emergencies. Suddenly, the interruptions to scheduled operations stopped, and with it the endless cycle of rearranging and catching up.

While the example is striking, it also somewhat undermines the book’s thesis: that scarcity makes its presence felt through the way we think. That hospital’s experience suggests that the issue may not be psychological at all, but a topic in operations research.

As the authors admit, this whole scarcity business is new and somewhat speculative. But one cannot help feeling that they are on to something. Scarcity made me think differently about money, food, and how I manage my own time. And for all its flaws, a book that changes the way you see the world is valuable – and scarce.

Tim Harford is an FT columnist and author of ‘The Undercover Economist Strikes Back’ (Little, Brown)