Scarcity leads to bad decision making, which could make the problem even worse

In the blocks around our Brooklyn apartment, there are several check-cashing places, which seem foreign to me. Why would you pay to cash a check when there are dozens of banks in the neighborhood?

But many poor families don’t use banks, whether that’s because they can’t afford the fees or don’t trust them or live a cash-based life. That leads to short-term decision making, potentially paying a high price to cash a check because you desperately need the money.

NPR’s social science correspondent Shankar Vedantam interviewed Harvard economist Sendhil Mullainathan and Princeton psychologist Eldar Shafir, who wrote a book called “Scarcity,” about the psychological effects of a shortage, whether its money or time.

The idea I took away is that when something is in short supply — money, food, time — your brain goes into survival mode. You aren’t worried about next month or next year, you’re making the decision that’s best for right now. Even if that short-run thinking makes your problem even worse later.

Here’s part of Vedantam’s story:

ELDAR SHAFIR: Perhaps it’s the context of poverty itself, being in that context, that brings about a very special psychology, a psychology that’s particular to not having enough. And then that psychology brings out problematic outcomes.

VEDANTAM: Mullainathan and Shafir have concluded that when you don’t have something you desperately need, the feeling of scarcity works like a trap. In a study looking at poor farmers in India, for example, the researchers found that farmers tended to be better planners and thinkers when they were flush with cash. But right before harvest, when they were strapped for cash, Mullainathan says their brains focused only on short-term goals.

MULLAINATHAN: When you have scarcity and it creates a scarcity mindset, it leads you to take certain behaviors which in the short term, help you manage scarcity but in the long term, only make matters worse.

VEDANTAM: Poor farmers, for example, tend to weed their fields less often than wealthy farmers. It’s the same with being super busy.

So we work against ourselves because of this short-term, survival instinct thinking. Poor farmers really need all the crops their land can produce, but they’re focused on today, not on harvest time.

I know I’ve been guilty of that, procrastinating something that becomes a big time sink later.  I’ve tried to get better at managing things before they become an emergency, which often means tasks are easier and less stressful.

Instead of, for example, making myself late for a meeting because I absolutely have to stop and buy gas or I’ll run out, I’d stop at the gas station when I’m only down half a tank and have nothing urgent on my calendar. … This is sort of a hypothetical example, since we don’t own a car these days, but you get the idea. Substitute going to the bank or getting your passport renewed or finishing a project with a deadline.

MULLAINATHAN: That’s at the heart of the scarcity trap. You are so focused on the urgent that the important gets waylaid. But because the important gets waylaid, you’re experiencing even more scarcity tomorrow.

Do you make decisions based on scarcity? Do you make short-term choices that end up making the scarcity worse later?

Listen to How Scarcity Trap Affects Our Thinking, Behavior” on NPR.com

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Categories: health and well being, lifestyle

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1 reply

  1. Hi there! That piece of yours is right on the money. Indeed the “scarcity” thing is something that makes us befuddled that we forget how to plan seriously. Thank you for this piece of insight that gives context to some things that we tend to forget about. Please have some more of these “eureka” moments. Thank you, from the Philppines.

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