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The Psychology of Scarcity

August 10, 2013

Sendhil MullainathanEldar Shafir have done some really interesting work trying to understand the psychological issues around being short on time and money and how to develop strategies that combat these challenges. They’ve published a book on the topic Scarcity: Why Having Too Little Means So Much

Their findings on poverty are especially interesting because they uncover the insight that the problem with being poor is just how much bandwidth it takes. Worrying about scarcity of money becomes a pre-occupation, which makes it very hard for those experiencing it to think and deal with complex issues.

They mention a number of examples of research.

One which found those eligible for tax credit on education because of they were poor didn’t apply for the credit because it involved completing a form. Then a change was made, upon discovering about the credit, they were offered help in completing the form, the number of applicants increased significantly.

In another, they asked people to consider and work out their strategy for dealing with a $150 car repair, when they analyzed the results they found rich and poor responded exactly the same way, there was no difference in the way they thought about the problem and the quality of their thinking. However, when the cost of the repair increased to $1500, the quality of the cognitive thinking of the poor in their sample, declined dramatically, it was equal to an eleven point drop in an IQ score.

Clearly these findings have huge implications for those dealing with the poor, especially government agencies and suggest that support and simplification are critical.

Below is the talk Sendhil and  Eldhar gave at this year’s Aspen Institute Ideas Festival. 

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