October 31, 2014
On October 23, the Levitt Center Speaker Series hosted a lecture titled “Scarcity: A Talk for People Too Busy to Attend Talks” presented by Harvard University Professor of Economics Sendhill Mullainathan. Mullainathan’s talk centered around his research when writing his book Scarcity: Why Having too Little Means So Much.
Around the time Mullainathan began working on his research for his book, he realized that he was overcommitted. Attempting to combat his ever-growing schedule, he pledged to refuse to take on any new obligations. He thought that once he was able to unload his responsibilities at the time, he would be able to think more carefully before taking anything else on. Falling into his old traps, he could not seem to say no to his colleague when asked to coauthor a chapter in a book. He credits his work on this chapter with coming up with the premise for the book he came to Hamilton to speak about.
In that chapter, he wrote about Sandra, a woman who faced financial difficulties after her husband lost his job. Without his income, the couple could no longer afford to pay the bills. In order to solve their problem, they took out a payday loan to meet their immediate costs—something that would come back to bite them when they owed that money plus interest just two weeks later. At that later date, the couple rolled over their debt to the lender and soon became entrapped in a cycle of debt. They began living pay check-to-pay check. It reminded him of his own situation; he was living minute-to-minute trying to accomplish everything. He began to wonder whether there was a connection between Sandra’s conundrum and his.
He ultimately discovered that his theory was true. Mullainathan categorized Sandra as “money poor” and himself as “time poor.” Both types were distinctly similar. Sandra made her immediate payments by borrowing more money in the same way that Mullainathan put off work in order to meet his more urgent duties. Just like many would look at Sandra and ask “You’re so poor, why did you just borrow more money?” Every time he took on something new, Mullainathan’s friends would ask him, “You’re so busy, why are you doing that?”
These similarities spurred him to write his book, in which he finds that “when you feel scarcity, your mind changes.” Referencing several psychological studies, he said, “When you lack something your mind focuses on it.” Sandra lacked money, so she focused on how to come up with it in order to pay her bills. Mullainathan lacked time so he needed to unearth creative ways to meet all his commitments.
He said that there are definitive benefits and drawbacks to the mind’s response to scarcity. In terms of advantages, it induces concentration so a person can accomplish what is most important. For example, deadlines work very well because of their imminence: people are forced to meet them. As for the downsides, it causes people to make irrational choices such as take out payday loans that they know they cannot repay. Important things, like a person’s financial health are shoved aside for the most urgent things like meeting immediate payments.
Finally, he introduced the concept of bandwidth. He defined bandwidth as the amount of things a mind is able to focus on during any given time period. If a person is constantly focused on other things like money or time, they have a shorter bandwidth. Being poor is particularly harmful when it comes to bandwidth. He said that even in terms of IQ, poor people score on average 10-12 points lower than those who are not poor. He said, “It’s as if the poor pulled an all-nighter all of their life.” He bemoaned the fact that policies do not take bandwidth into account and that doing so can help us solve some perplexing social problems.
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