Scarcity: Why Having So Little Means So Much, an Interview with Sendhil Mullainathan

My guest this week, behavioral ecomomist Sendhil Mullainathan, is a Harvard professor and non-resident fellow at CGD who is transforming how people think about poverty, and what can be done to support poor people in improving their lives. Sendhil was recently at CGD to discuss his new book, Scarcity: Why Having Too Little Means So Much, in which he explains that limited bandwidth—the ability to stand back from one’s life, assess trade-offs, and make rational choices—is a problem for all of us, but an especially difficult problem for those who live daily with scarcity.  

Sendhil’s wonderful book begins with an explanation of why busy people, like him, get overcommitted, then lack the bandwidth to take the seemingly simple steps (like saying no to new commitments) that are necessary to address the problem. He goes on to explain the problem of scarcity with the analogy of a business traveler who attempts to pack for a trip with a too-small suitcase, spending precious bandwidth—mental energy—trying to decide what to place in the bag, only to inevitably leave out something important. I shouldn’t have been surprised then that Sendhil arrived for our interview late, his belongings spilling out of a tiny, over-stuffed suitcase.

It was an apt moment for a man who takes care to stress, in his writing, in the Wonkcast, and in his subsequent talk to a packed CGD audience (video here) that the affluent and the poor have the same behavioral responses to scarcity—it’s just that the poor experience scarcity much more frequently and profoundly. “Something that kicks in when we have too little. And that same force kicks in whether you're a busy CEO [for whom time or space in a suitcase is scarce] or a poor person living on the equivalent of a dollar a day. That psychology is the same and universal.” 

The tendency to become preoccupied with the thing we lack can be useful for meeting a deadline or stretching a dollar to make rent, but it also has a more pernicious aspect that causes us to neglect the important in favor of the urgent. Sendhil offers the examples of a CEO distracted by thoughts of an overdue project while spending time with her kids and a rag picker who rents her cart, even though setting aside a little money each day to eventually buy one would enable her to cut costs and increase her income.

The CEO’s and the rag picker’s dilemmas effect everyone, regardless of economic status, but Sendhil emphasizes that the inability to focus on important, long-term investments or tasks has an even larger and more negative impact on the poor:

“There are studies on sleep psychology, where they have people pull all-nighters with literally no sleep and then they see the effect of that on IQ and bandwidth,” which not surprisingly are quite substantial, Sendhil explains.  Other studies have shown that poor farmers awaiting their harvests, short of food and stretching what little cash they have until the crops come in, experience about 3/4 of that effect. “So it's as if the poor are pulling an all-nighter every day. This is a huge effect,“ Sendhil explains.

Sendhil believes the magnitude of this problem should influence the design of programs intended to help poor people, but often the bandwidth of the poor is treated like a free resource. For example, some early conditional cash transfer programs imposed multiple requirements on recipients without regard for bandwidth required to keep track of them all—or the consequences of shifting scarce bandwidth from one priority to another.  Similarly, HIV prevention education programs have sometimes been scheduled for the pre-harvest period, based on the notion that poor farmers seem to have plenty of time on their hands, not recognizing that their minds will be preoccupied with scarcity.

Sendhil explored the implications of this research in a 2012 CGD policy paper, Behavioral Design: A New Approach to Development Policy, co-authored with Saugato Datta, that predated the book but touches on many of the same themes, exploring the development policy implications in greater depth. Saugato was a guest on the Wonkcast when that paper was first published, and was among the panelists at the recent CGD event.