Scarcity by Sendhil Mullainathan

 I was intrigued by a short review of this book on one of the finance blogs I read regularly, so I picked up a copy at the library. Once more, this is one of those scholarly works where the authors took their research paper and tried to turn it into a full-length book, probably stretching their initial hypotheses to the breaking point in order to make a point...and word count.

One of the things their research uncovered is the focus dividend - the positive outcome of scarcity capturing the mind. One example that comes to mind is finishing up a paper that's been due for months on the last possible night, like most college students do. The whole concept of "making your last shot count" comes vividly to mind in this context. If you have less resources, you will make the ones you have as effective as possible.

Another term they invented for the book is the tunneling tax - the negative effects of focusing single-mindedly on managing the scarcity at hand. Tunneling often happens in the area of insurance; the poor believe they cannot afford health insurance because their day to day demands are commanding all of their resources and attention, and they are unable to look at the long term effects of going without this essential service. We won't get into the whole political battle over employer and government provided, mandated or subsidized health care at this point, but I will mention that I have known some young people who declined their employers CHEAP health care coverage because they "couldn't afford it", then spent far more money on "necessities" like new hunting rifles and tinted windows on their cars. Tunneling happens in the business world quite often, as well. Think of the companies that made decisions in search of a short term profit, and ruined their business in the long term,.

Scarcity in our personal, emotional or financial lives has a number of effects on our mental bandwidth (the authors borrow a networking term here). The two primary components of bandwidth as defined here are cognitive capacity, the mechanisms that underlie our ability to solve problems, retain information and indulge in logical reasoning, and executive control, the way we go about planning, paying attention to, initiating and inhibiting actions.

In the area of executive control, one interesting thing they talk about is that willpower is often a function of diverting your attention away from the items or actions which you wish to avoid, and focusing your attention on things you wish to embrace. "Once you realize that willpower is just a matter of learning how to control your attention and thoughts, you can really begin to increase it."

An interesting example from nature of the effects of scarcity versus plenty (though God only knows how much mental capacity insects actually have that could be affected by worrying over scarcity) was that bees build intricately constructed honeycombs out of wax, which is manufactured within their bodies after consuming pollen (a pound of wax requires more than ninety thousand little bee journeys to collect nectar from flowers) whose walls are perfect hexagons with a thickness accurate within a two percent tolerance, while wasps use easily acquired mud and build very sloppy ill-constructed nests.

Cause? Effect? I dunno, but it was an interesting factoid.

One of the ways in which the poor are affected by scarcity is that the "tunneling" causes them to think only of the immediate need. One business that takes advantage of this is the payday loan industry.

Did you know that "In 2006 there were more than 23,000 payday lender branches in the United States, which was more than all the McDonalds (12,000) and Starbucks (almost 9,000) locations combined."?
3.5 billion dollars in fees each year!!

Some support for one of the things I've long maintained (and read somewhere before) - working overtime over a long period of time is counterproductive and if you can't get the job done in 40 hours a week or less, on average, you're doing it wrong, may be found in a couple of  articles they reference Why Crunch Mode Doesn't Work and Bring Back the 40 Hour Work Week.

Interesting thought,

"Recent research shows that self-control may actually get depleted as we use it. One study, for example, put dieters in a room with some highly tempting snacks (Doritos, Skittles, M&Ms, salted peanuts) and gave them a computer task to perform. For some, the snacks were placed, highly visible, on the table right next to them. For others, the snacks were far away, out of mind. Having completed the computer task, subjects were given access to large containers of ice cream. Those who had been sitting next to the snacks, continuously resisting the urge, finally caved. They ate significantly more ice cream than those who were less tempted by the distant snacks. Researchers have likened willpower to a muscle, which fatigues with use."

Excuses for my binge eating at last! I've exercised my willpower far too long.

In the context of studies about the poor not taking medications they needed to stay healthy, even when the medicines were freely provided to them, they mentioned a startling fact. After decades of medical research, we have medications which can keep diabetics healthy, save HIV victims, cure tuberculosis, and yet diabetics only take their medications 50 to 75 percent of the time, millions have died of AIDS due to failure to take their medications regularly, and in order for tuberculosis treatment to work, doctors have to assign each patient someone who comes every day to watch them take their pill, otherwise they won't do it.

Crazy, huh?

The authors come up with a number of ways in which they recommend we administer various social programs which serve the poor which take into account the effects of scarcity. It's an interesting read, but I'm not sure that sheer human cussedness won't foil those efforts just as it has foiled others we've already tried.

As I said in the beginning, they really stretch things to show how scarcity affects everyone in similar ways, but there are just enough outliers and just enough contradictory phenomena out there to make me doubt that things are as simple as they hope.