PDF Summary:Scarcity, by Sendhil Mullainathan and Eldar Shafir

Scarcity is a universal human experience: the feeling that we don’t have enough of what we need. In Scarcity, behavioral science researchers Sendhil Mullainathan and Eldar Shafir explain how scarcities of time and money temporarily change our brains: They make us more efficient with a limited resource in the short term, but they also decrease our mental bandwidth, distorting the way we process information and make decisions. This not only exacerbates scarcity, but it also takes a huge toll on other areas of our lives, like health, relationships, and work.

In this guide, we’ll explore both the good and bad sides of scarcity: how it enables us to work at a superhuman pace as a deadline approaches and how our decreased mental bandwidth digs us deeper into scarcity. We’ll discuss strategies to counteract the negative cognitive effects of scarcity, why poverty is a unique scarcity, and how we can design better social programs to alleviate poverty. We’ll also include recommendations from other authors about managing limited time and money.

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The Payday Loan Landscape in the US

Supporting Mullainathan and Shafir’s argument that payday loans are a solution to urgent unmet needs in poor populations, research shows that 70% of payday loan borrowers use the money for basic monthly expenses such as utilities. In addition, 75% of borrowers take out at least 10 loans per year, suggesting that people use them for ongoing expenses and not just for emergencies (as they’re primarily marketed). Payday loan services are also more concentrated in areas with high levels of poverty, making them highly accessible and therefore more appealing to those in the scarcity mindset.

Another key factor in payday loan demographics is age. The majority of borrowers are 18-24 years old, which may be partly due to the rising debt crisis among young people. Young adults also have lower average credit scores, which limits their borrowing options. Payday loans don’t require any credit score, unlike more traditional, low-interest bank loans that do require a minimum credit score.

Since the book was published, three presidential administrations in the US have changed regulations on payday loans. The Obama administration barred interest rates higher than 400% and required lenders to determine if the borrower could repay the loan as well as cover their basic expenses. The Trump administration ended these protections, and this decision was then reversed during the Biden administration.

Strategies to Cope With Scarcity

Given the limited upside of scarcity, and the heavy toll it takes on our mental bandwidth, Mullainathan and Shafir provide recommendations for intentionally manipulating our environment to counteract the psychology of scarcity. In this section, we’ll describe strategies for improving your day-to-day life as well as strategies for organizations to implement.

Strategies for Your Personal Life

The authors explain that by understanding how scarcity impacts your mental bandwidth, you can then deliberately change aspects of your life to account for these deficiencies. Here are some of their recommendations:

1. Create reminders that disrupt the hyperfocus caused by scarcity to avoid forgetting important tasks or to keep you on track with your schedule. This could include text messages or computer notifications—anything that actively grabs your attention. (Shortform note: The timing and the location of a reminder are key to making sure they’re effective, writes Don Norman in The Design of Everyday Things. He explains that a digital reminder might be the most effective in some contexts, whereas a physical note is more effective as a recurring reminder (like trying to keep something in mind when you’re working on your laptop or going into the fridge).)

2. Change default settings so that when you neglect to pay attention to certain things, they get done anyway. The authors suggest setting up auto-pay for your bills or automatically transferring money to a savings account. (Shortform note: To guide you through this process of changing default settings, Ramit Sethi explains in I Will Teach You to Be Rich how to set up a fully automated system for your personal finances. First, link your paycheck to a 401k savings account and your checking account. Then, auto-pay all of your bills with a credit card and set up auto-pay for your credit card using your checking account. He also recommends using a financial app that alerts you if you overspend.)

3. Minimize temptations. Since we have a lower capacity for good decision-making when we’re in the scarcity mindset, focus on ways to minimize the number of good (forward-thinking) decisions you have to make. For example, instead of going to a mall to shop for something you need, shop in a smaller, specialized store with fewer opportunities to spend money on things you don’t need. (Shortform note: In Profit First, Mike Michalowicz describes an alternative strategy for minimizing your risk of overspending. He recommends making certain bank accounts difficult to access so that giving in to temptation and overspending requires more effort.)

4. Manage high-bandwidth periods. Since bandwidth varies over time, pay your bills or deliberate on financial decisions on non-work days, when you’re less distracted by work tasks due to a scarcity of time. (Shortform note: In Hyperfocus, Chris Bailey asserts that you can go beyond bandwidth management and actually increase your bandwidth, and your working memory specifically, using mindfulness and meditation practices.)

5. Create buffers of time and money when you can. The authors refer to this concept as “slack,” and it’s essentially the opposite of scarcity: having wiggle room so that you don’t have to make difficult tradeoffs or get increasingly behind on things when unexpected costs or events occur. Create scarcity buffers by setting aside blocks of unscheduled time and setting up savings accounts for emergencies, even if you don’t feel like you have a lot of time or money to spare.

(Shortform note: In The 12 Week Year, Brian P. Moran recommends two specific ways to integrate time buffers into your schedule: create a “buffer block,” which allocates time for miscellaneous and unexpected distractions that come up, and create a “breakout block,” which allocates time for resting and recharging your mental capacity.)

Strategies for Organizations

Although individuals can alleviate some of the cognitive effects of scarcity through targeted behavior changes, organizations can also do their part to reduce the harmful effects of scarcity. Mullainathan and Shafir have the following recommendations:

Create Shorter Deadlines

As we saw in the earlier section on the benefits and downsides of scarcity, abundance often encourages waste, while scarcity fosters efficiency. Therefore, Mullainathan and Shafir claim that imposing long deadlines is likely to result in long periods of inactivity as well as short, stressful periods of productivity. As an alternative, they recommend creating shorter, more frequent deadlines to increase efficiency and reduce opportunities to fall far behind on an intended work plan.

(Shortform note: This is a common strategy for project management because it helps people focus on specific parts of a complex project. Research shows that breaking up tasks into shorter deadlines also helps because it makes tasks feel more manageable. On the other hand, if a teacher or employer is setting unreasonable deadlines, this contributes to higher stress levels and burnout.)

Create Good Options for Impulsive Decisions

Mullainathan and Shafir recommend leveraging the fact that we have less capacity to resist temptations when we’re low on mental bandwidth. They argue that financial institutions could create options that help you save instead of worsening your financial situation when you impulsively want to buy non-essential things. To do this, Mullainathan and Shafir present the idea of placing savings cards near check-out counters in stores instead of candy bars and gum. These are cards that automatically transfer money from your checking account to a savings account, giving you the opportunity to spontaneously save money instead of spending it.

(Shortform note: Another strategy along the same lines was a project called MAGIC Mojo, a mobile app that allowed people to send a text message to transfer money to their savings account every time they resisted making an impulsive purchase. The app also tracked the person’s progress toward a specific savings goal, providing an immediate sense of accomplishment with each savings update.)

Send Reminders

To counteract peoples’ tendency to forget important annual tasks, the authors say that agencies can send physical or digital reminders to people before deadlines pass. This is similar to the individual strategy in the previous section but can also be implemented by institutions. For example, the Department of Motor Vehicles can mail reminders to renew car registrations, a task that is easy to forget when you’re in the scarcity mindset.

(Shortform note: Reminders might be more effective when used in conjunction with other strategies. Even if people remember important tasks, they’re more likely to take action if institutions minimize the mental bandwidth required by making it as easy as possible. For example, voter participation increases when people are automatically registered to vote (another form of “changing the default” discussed in the previous section) and when there are many different times and ways to vote.)

Manage Employee Bandwidth

Mullainathan and Shafir recommend that workplaces intentionally manage employee bandwidth by preventing people from working too many hours and making sure they can get enough sleep. Studies show that productivity drastically decreases when people are overworked and sleep-deprived compared to when they work fewer hours and are well-rested. (Shortform note: The impact of low bandwidth and subsequent sleep deprivation leads to impaired attention and concentration, which has particularly dire consequences in the medical field. In Why We Sleep, Matthew Walker reports that sleep-deprived medical residents have a higher risk of committing surgical errors, misdiagnosing, and causing careless deaths.)

Alleviating the Impact of Poverty: A Unique Scarcity

Now that we’ve covered strategies for mitigating the effects of scarcity, we’ll discuss why poverty is a unique scarcity in terms of its challenges and potential solutions. Mullainathan and Shafir emphasize that the stakes are higher with poverty compared to other forms of scarcity (like not being able to manage your schedule). If someone misses an appointment, they might complicate their tight schedule further—but it’s not an issue of survival, like not being able to pay rent or buy groceries.

(Shortform note: Poverty, and the unique scarcity and fight for survival that it brings, exists even in seemingly affluent and successful economic systems. For example, in the UK, landlords and utility companies force some people to use prepaid energy meters. People need electricity to cook food, heat their homes, and power medical equipment, but millions of people in the UK lose access to home energy when they can’t afford to pre-pay the meters installed in their homes.)

In addition, the authors point out that if we’re low on money, we’re also more likely to struggle with a scarcity of time because there are only so many hours we can work to make money.

Financial Scarcity Has Wide–Reaching Impacts

Money is the one thing that controls all of our other resources, so it impacts every aspect of our lives. The authors explain that the domino effect of the scarcity mindset contributes to worse outcomes for poor people in terms of health, parenting, memory, work productivity, and sleep. They support this argument with evidence showing that when scarcity of money is eliminated, the cognitive capacity of people increases. Mullainathan and Shafir emphasize that problems relating to these areas stem from the bandwidth shortage caused by poverty rather than a lack of education or competence.

(Shortform note: Because these metrics are complex and overlapping, it’s likely that many interconnected factors contribute to worse outcomes in poor populations. For example, communities of color disproportionately experience poverty, and researchers attribute poor health outcomes in these communities to institutionalized racism and other forms of discrimination, language barriers, and low access to healthy food, quality education, and health insurance, among many other factors. Therefore, it’s difficult to isolate poverty and the depletion of mental bandwidth from other intersecting root causes.)

Health

In the context of health, for example, the authors write that poor people are much less likely to take their medications regularly. Although the medicine might be very important, Mullainathan and Shafir claim that it tends to fall outside of the scarcity-induced narrow focus. This leads to more severe illness even for conditions that are highly treatable, such as high blood pressure.

(Shortform note: Mullainathan and Shafir don’t specify if this problem applies to all illnesses, but based on their argument we can infer that the bandwidth shortage causes poor people to neglect medications for chronic illnesses with long-term consequences. It’s much harder to ignore conditions with immediate consequences for not taking medication, like asthma, although these conditions might also contribute to lower mental bandwidth for other things.)

Parenting

Mullainathan and Shafir argue that meeting common standards for good parenting (like providing consistent rules and connecting with children) are all much more difficult for a poor parent hyper-focused on making scarce resources stretch. They require mental bandwidth to manage numerous areas and make complex strategic decisions.

For example, after working long hours, a parent might have to juggle preparing dinner, cleaning, making sure homework gets done, enforcing disciplinary rules, resolving conflicts between their children, trying to spend quality time with their family, and planning logistics for the next day—all while the parent is focused on making ends meet to cover basic expenses. Mullainathan and Shafir also point out that poor parents can’t use money to ease their workload by hiring tutors or childcare providers.

(Shortform note: On the flip side of this example, Malcolm Gladwell explains in David and Goliath why having too much money also makes parenting harder. He writes that money only makes parenting easier up to a point. If you have enough money to buy most of the things your children ask you for, you have to be able to say that you won’t (rather than can’t) buy them something. To avoid making your children dependent on you, you have to deny them some things they want, and this requires establishing clear values and communicating them to your kids.)

Memory

People living in poverty also struggle to remember things like paying bills on time or keeping track of appointments. This leads to penalties such as late fees, making it even more difficult for people to pay their bills. Mullainathan and Shafir also write that late fees have more severe consequences for poor people—it might take away from the monthly grocery budget for a low-income person as opposed to being a negligible expense for a wealthy person. They argue that poverty not only increases the stakes for missing a payment but also makes people more likely to forget something like this due to their bandwidth shortage.

(Shortform note: Research reveals that the top reason for missing a credit card payment is forgetting about it, but it’s unclear if that primarily includes people struggling financially. Although one solution is to use auto-pay settings to avoid forgetting a payment, poor people would still be more vulnerable to other fees, like overdraft fees (incurred by withdrawing more than their available balance) or dropping below the minimum bank account balance.)

Work Productivity

Mullainathan and Shafir also claim that poverty decreases working memory (our ability to keep track of several tasks and process information). This then impacts poor people’s ability to be productive at work. For example, retail workers have to be able to ring up orders, watch out for shoplifting, and be friendly and engaging with customers, all while they’re in a heavily burdened mental state.

(Shortform note: Many people argue that because our working memory is limited, we should minimize multitasking at work—no matter our income level. Gary Keller asserts in The One Thing that multitasking reduces our effectiveness, increases stress, skews our sense of how long it takes to do things, and wastes time as we shift between different tasks. However, some people might have less control over how they do their work if they’re a lower-ranked employee or work in the service industry, which often requires multitasking.)

Sleep

Mullainathan and Shafir write that poverty also impacts sleep because being preoccupied with financial instability depletes the amount and quality of sleep that poor people get. The effects of sleep deprivation accumulate over time and chip away at peoples’ already depleted mental bandwidth. This then negatively impacts all the other areas discussed in this section, like parenting and work, as well as safety issues like driving.

(Shortform note: Walker explains in Why We Sleep that sleep deprivation also puts people at higher risk for health problems such as heart disease, diabetes, obesity, cancer, and disruptions to hormone levels and immunity. In terms of driving safety, Walker reports that getting less than five hours of sleep causes the same cognitive impairment as being legally drunk.)

Changing Social Programs to Minimize Required Mental Bandwidth

Because of the severe and cumulative effects of financial scarcity discussed in the previous section, Mullainathan and Shafir argue that policymakers should design social programs that maximize people’s benefits by minimizing the required mental bandwidth to participate in these programs. This section will describe some of their recommended strategies to implement this.

Educational Programming

Mullainathan and Shafir suggest that educational programs provide classes on a rolling basis so that people don’t have to drop out of a program if they miss one session. Since poor people are more likely to have other tasks pulling their attention away from a class (which isn’t an urgent need), this strategy makes it easier for people to participate even if they can’t consistently show up. For example, if a class consists of four different sessions, stagger the start dates so that if someone misses a session, they can join a different group where they left off.

(Shortform note: This strategy focuses on improving education programs for poor adults, but many people argue that we should focus on improving education for children in low-income families to alleviate the impacts of poverty. This is because poor students in the US are concentrated in public schools with fewer resources, making students less likely to finish school and less likely to escape poverty. Mullainathan and Shafir’s strategy of providing parallel classes could potentially be adapted for young students by providing tutoring to prevent kids from falling behind during the school year if they miss class or failed part of the curriculum.)

The authors also emphasize the importance of offering rules of thumb that are easy to remember instead of overloading people with information they won’t be able to process and retain. For example, “always pay off your highest-interest debt first” is a rule of thumb that can make more impact than a lengthy course on financial strategies. This strategy also takes into account the scarcity of time that poor people are more likely to experience because it’s less time-consuming to communicate rules of thumb.

(Shortform note: Some research suggests that rules of thumb are a cost-effective way to communicate financial strategies. However, other examples illustrate ways that rules of thumb can lead people astray when the rule shouldn’t be applied in a specific context. For example, one nutritional rule of thumb is that we should “eat the rainbow,” meaning that we should eat foods of all different colors to consume diverse nutrients. But this rule could be used to justify eating only rainbow-colored gummy bears or colorful donuts, which is inadvisable from a nutritional standpoint.)

Lastly, Mullainathan and Shafir urge organizations not to focus solely on educational efforts (like classes about nutrition or why it’s important to take your medications) that tax people’s limited time and mental bandwidth. Instead, Mullainathan and Shafir recommend shifting to concrete strategies, like reminders to take medicine. This targets people’s tendency to forget important tasks instead of trying to convince people that tasks such as medication adherence are important.

(Shortform note: Since the book was published, Mullainathan’s nonprofit, ideas42, has successfully implemented a few programs based on this strategy. For example, in two different pilot projects, text message reminders for court appearances increased attendance and decreased arrest warrants issued for failing to show up in court. Reminders to apply for recertification also helped participants in the Special Supplemental Nutrition Program for Women, Infants, and Children keep their benefits.)

Social Program Applications

Another strategy to improve social programs is to help people fill out forms and applications since many people miss out on the benefits they qualify for because forms and applications are often tedious, time-consuming, and require many forms of documentation. The authors’ research shows that assisting people with applications in person increases participation rates.

(Shortform note: In addition to helping people fill out forms and applications, simplifying the applications for social programs (for example, by reducing requirements for multiple in-person appointments) would reduce the bandwidth required to participate. On the other hand, language barriers also prevent non-English speaking people from applying for social benefits in the US, illustrating a deterrent to participation that goes beyond the mental bandwidth shortage.)

Childcare

Mullainathan and Shafir also argue that reducing the burden of childcare through free or heavily subsidized childcare options can go a long way in freeing up the mental bandwidth of low-income people. They emphasize that childcare requires lots of high-level cognitive functions, and without consistent childcare options, people may also have to juggle transportation and other logistic arrangements with multiple people helping with childcare.

(Shortform note: Research in the US reveals that childcare is a major financial burden for poor families. The US Department of Health and Human Services claims that affordable childcare should cost less than 7% of a family’s income, but only one state (Louisiana) meets this standard for the median family income. In addition to taxing people’s mental bandwidth, consequences of unaffordable childcare include decreased productivity for workplaces (due to parents missing work for childcare), lost wages and fewer retirement benefits for parents who have to leave the workforce, and harmful effects on kids from unregulated and substandard childcare.)

Financial Policies and Programs

The authors also highlight the benefits of changing high-fee payday loans so that some of the fees go toward a savings account for the borrower. They explain that this leverages peoples’ instinct to opt for a quick solution to urgent needs while also reducing the risk of them spiraling into debt. It would also help people establish a financial buffer that can cover unexpected and emergency expenses.

(Shortform note: The US Consumer Financial Protection Bureau regulates payday loans at the federal level, but individual states still have widely varying payday loan regulations around interest rates and fees. Mullainathan and Shafir aren’t clear about how this kind of reform would be implemented, but there are several advocacy groups working to provide better consumer information and lobby for policy changes.)

Lastly, employers can help stabilize employees’ income and mitigate the harmful effects of scarcity by providing them with a consistent schedule and paying them more frequently. Mullainathan and Shafir suggest that a stable income would also stabilize people’s mental bandwidth.

In the case of farmers, who are both self-employed and may only receive income at harvest time once a year, Mullainathan and Shafir recommend a financial product that distributes a farmer’s income over the course of a year. This would reduce periods of extreme abundance and scarcity, making farmers more efficient with their monthly income and freeing up mental bandwidth when their money from the previous harvest is low.

(Shortform note: Mullainathan and Shafir don’t go into detail on these financial policies or who would be incentivized to participate. Labor unions are one example of an institution that already protects minimum work hours. However, outside of unions, it’s unlikely that employers would have an incentive to do the same, except perhaps to increase employee retention. For the authors’ example of spreading out farmer income, there’s no evidence that farmers would be willing to participate in this kind of program. In addition, farmers have the unique challenge of expenses that vary greatly throughout the season for things like seed, fertilizer, and labor, so their income needs might also vary from the norm.)