Scarcity: Why Having Too Little Means So Much (15 page)

We recruited
Princeton undergraduates to play
Family Feud
in a controlled setting
. Participants played several rounds in a fixed amount of time—the amount of time they were allocated determined their “wealth.” The “rich” had more time; the “poor” had less. In every round, they saw a new question. At the end of all the rounds, the total number of points they accumulated was converted to dollars.

Having created the rich and the poor, we added the element of real interest to us: we gave them the option to borrow, with interest. Each additional second they chose to use on a round cost them
two
seconds deducted from their total time. We also allowed them to “save”: if they finished a round early, the remaining time was “deposited” back into their total.

The poor focused. Per second, they were more effective than the rich; they made more guesses and earned more points. This was especially true in the later rounds, as they were running out of total time: the poor made 50 percent more guesses per second and earned more per guess. Had the rich stayed as intensely focused as the poor, they
could have earned many more points. Since we gave the rich more than three times as many seconds, they could have played three times as many rounds and earned three times as many points. Instead, they only earned 1.5 times as much as the poor. Further analyses confirmed that none of the reasons that might come to mind—that the rich, who played longer, were getting bored, or that the best guesses come in early in each round—could explain these results.

The poor were more effective because they tunneled. As a result, they borrowed much more than the rich. Despite the high interest rate, loans looked extremely attractive in the tunnel, much more attractive than a view from the outside would warrant. So the poor resorted to borrowing often, to help themselves right now. But in the end they were hurt by it. When we took away the ability to borrow—you now played each round as best you could and then moved to the next one—the poor earned 60 percent more points; the rich were unaffected.

In another version of the experiment, we re-created a payday loan trap akin to Sandra’s experience. The
Family Feud
poor rolled over the loans just like payday borrowers. Their debt would start getting repaid on the next round, making it just a tiny bit shorter. As subsequent rounds got shorter and shorter, subjects felt the need to borrow more seconds. Early borrowing created a vicious cycle for the poor. Pressed for time, too rushed to make productive guesses, they borrowed more. Most of their time was just going to paying off early loans (plus interest). And as before, when they were permitted to borrow, the poor did much worse than when they were not allowed to borrow, an effect that was missing for the rich.

This study shows the intimate link between success and failure under scarcity. The contestants in
Family Feud
borrowed most when they were being most productive, when they were most engaged, when they really felt they needed more time. In a sense they were right to borrow: those extra seconds had a good chance of paying
off. In another sense, they were wrong to borrow because that payoff did not compensate for the interest rate incurred. What they noticed in the tunnel—an extra second could really help right now—was accurate. Their mistake was to neglect what was outside the tunnel: how much would this extra second cost later in the game? It is worth noting that both the rich and the poor showed this pattern of borrowing when they were particularly productive and pressed. It’s just that the poor, with their fewer seconds, were in that state a lot more often.

So why did the poor borrow more? Are these results due to tunneling or to something else? Perhaps time pressure leads people to borrow in a panic. After all, it’s not every day that you find yourself having to answer questions in fifteen seconds. We have replicated these findings in numerous other contexts. In the Angry Blueberries study from
chapter 1
, we also allowed for borrowing. And we found that the blueberry-poor subjects—facing no time pressure—borrowed more blueberries and were hurt by the ability to borrow. Focus again played a role: those who took more time on each shot were more likely to borrow: the more engaged, the more they borrowed. We have tried this in many such games, and the results are consistent: scarcity, in whatever form, always leads to borrowing.

Or perhaps our results are due to a general myopia. For example, researchers have documented a bias toward the here and now, which they call
hyperbolic discounting
, or
present bias
. We overvalue immediate benefits at the expense of future ones: this is why it is hard to save, to go to the gym, or to do your taxes early. Of course, present bias would also generate borrowing. Perhaps the poor borrow simply because they are more present biased. In fact, some have tried to explain actual borrowing in the world using this argument. What is striking in our data is that subjects were
randomly assigned
to be poor: they were no different from the “rich” except for the flip of a coin. Clearly, both groups in this study, rich and poor, should show an equal amount of present bias. In fact, any attempt to analyze myopic thinking at the level of personal differences
between rich and poor—whether differences in present bias or otherwise—would need to somehow explain how scarcity led to borrowing in our present contexts, where rich and poor were created at random and could not have been more alike.

These studies support our more general hypothesis about the world: the reason the poor borrow is poverty itself. No need to resort to myopia or to financial ineptitude for an explanation. Predatory lenders may certainly facilitate this type of borrowing, but they are not the source. The powerful impulse to borrow, the demand for high interest and potentially spiraling borrowing, the kind that creates a slippery slope and looks so ill advised, is a direct consequence of tunneling.

Scarcity leads us to borrow and pushes us deeper into scarcity.

Imagine you are working under a tight deadline. Suddenly, after weeks of planning, your report is due tomorrow, and you are not quite there. You scramble all night, do all you can, but there are a couple of references you just can’t trace. Not in time for tomorrow, anyway. So you submit the report to your boss as is, hoping for the best. And you move on to other pressing matters. The following week, hours before an important trip, you receive a note from your boss: “There are missing references in the report—I need them immediately!” Like a boomerang, that quick fix has come back at you, at the worst moment. Like borrowing, behaviors such as these look attractive inside the tunnel but have potentially spiraling consequences outside it: they can dig you deeper into scarcity.

Two organizational researchers illustrate this with the story of a steel cord manufacturer.

Because machine uptime was important
, the company encouraged maintenance engineers to respond to breakdowns
as quickly as possible
[
emphasis added
].
Even so, overall performance didn’t improve. Only after the company started keeping and analyzing records machine by machine instead of person by person did it realize [why]. Engineers … would make a quick fix and move on to the next machine. Each … breakdown [was] patched three times before it was finally solved.

In a way the engineers were doing exactly as asked: they were solving problems quickly. Management, you might think, had committed a classic mistake. As organizational researchers would describe it, they were “paying for A while hoping for B.” They were asking for speed while hoping for speed and quality. However, this was not simply a case of misaligned incentives; the workers in this case would likely have taken this quick fix even if they were their own bosses. When working to finish things quickly, the engineers tunneled. Inside their tunnel, a quick fix was just the thing needed. Cutting corners was the perfect solution; the cost would only show up later. Much like an expensive loan, a hastily patched solution looks attractive within the tunnel. It saves us something today even as it creates greater expenses in the future. And we will then have more to do, more things to fix, more bills to pay. Patching is a lot like borrowing, a failure to invest and to commit the resources now so that the job is done correctly.

People short on money also patch together short-term solutions. You need a washer but are short on cash? Buy the cheapest appliance. It is, of course, less durable, but that problem falls outside the tunnel. When your tire goes flat, you may literally opt for a cheap patch rather than get a new tire. You know that a patched tire is less advisable, less safe, and less durable than a new tire. But that, too, is outside the tunnel. For now, inside the tunnel, the patch makes life a lot easier. Like a quick fix that saves time now, these are all quick fixes that economize on money today. And as the patches accumulate—for the engineers, the report writers, and the poor—so too do the long-term costs.

The
author
Steven Covey finds it helpful to classify tasks
according to whether they are important and whether they are urgent. He notes that busy people spend their time on tasks that are both urgent and important. This is what it means to be working on a deadline. We get a burst of output working on the tasks that matter and that are due very soon. We would call this a focus dividend.

At the same time, he argues, busy people tend to neglect the
important but not urgent
tasks. These are tasks that can always be put off until later. And so we do. Nowhere do we see this more clearly than in the state of our offices or our homes. When we get very busy, our homes and offices become very messy. There is always something more pressing than keeping order, which is never truly urgent. Of course, we don’t make a conscious decision to have a messy life. Instead, the messy surroundings just “happen” while we attend to what’s urgent. The messy home or office is the result of a sequence of small choices, mostly passive, effortless, and unnoticed. Rushing to a meeting, you drop a stack of mail on top of another stack of papers. Getting to the phone, you leave the book you’re reading open on the sofa. Lots of little things, at the end of which there’s a mess. While not urgent, it is important. It is less productive and less pleasant to work and live in a messy space.

Putting off an important but not urgent activity is like borrowing. You gain time today by not doing it. But you incur a cost in the future: you will need to find time (possibly more time) to do it at some later point. In the meantime you may pay a cost for not having done it or lose the benefits that taking care of it could have brought. Having a messy office makes your work just that much less productive. You spend a whole lot of time trying to find those papers under the mail. Every day you incur a little cost. The cost is never big enough to make the thing urgent, as a deadline might. Instead, the neglected office bleeds you by a thousand little cuts.

Scarcity, and tunneling in particular, leads you to put off important but not urgent things—cleaning your office, getting a colonoscopy, writing a will—that are easy to neglect. Their costs are immediate,
loom large, and are easy to defer, and their benefits fall outside the tunnel. So they await a time when all urgent things are done. You fail to make these small investments even when the future benefits can be substantial.

The tendency to put off important but not urgent choices shows up in money as well as time. Here is one example. Rag collectors in India travel around town looking for old clothes and cloth pieces being tossed away that can be sold for reuse. It is, as you might imagine, a low-income job: a typical collector earns less than a dollar a day. But it is also a low-investment job: besides labor, the only equipment is a pushcart, which might sell for $30. And yet most rag collectors do not own their pushcart; they rent it, for $5 to $10 a month. Most collectors would like to save up for a pushcart but never quite manage to do that.

Investing in a pushcart is an important but not urgent activity. Like keeping your office clean, it has benefits in the future, but it can always wait; it is not essential right now. The irony, of course, is that if a rag collector had the pushcart, he would have one less expense (the rent), and some of the other pressing expenses wouldn’t be as hard to deal with. Of course, that is true for your office as well—if it were better organized, you’d be saving time and end up less rushed. (And with more time to clean the office.) The pushcart is but one of many examples that poverty researchers can point to: even when returns are high, the poor, who need those returns more than anyone, fail to invest in ways that cannot be explained by weak financial institutions or a lack of skills.

If all this sounds vaguely familiar, it may be because you have heard it discussed in politics. A similar focus on the urgent at the expense of the important has long been observed in the workings of governments that, over decades of tight budgeting, have slashed spending on infrastructure. The upkeep of bridges, for example, is a critical investment. Yet it is one that is all too easy to put off when budgets are tight and cuts are needed. Decaying bridges are important but not urgent, and so, according to a 2009 report issued by
the American Society of Civil Engineers,
approximately one in four rural bridges
and one in three urban bridges in the United States are deficient.

These various behaviors share one obvious feature: people are behaving myopically. This leads to the most basic implication of tunneling. When we focus so intensely on making ends meet now, we plan less effectively for the future. Of course, studies have shown that planning is a problem for all people. But
scarcity makes this problem a whole lot worse
.

Think of it this way. On a good day, you might start by looking at your calendar, taking a moment to gauge what’s ahead of you today, maybe even getting a sense of what the week holds. Being aware of what is coming allows you to mentally prepare for it, to anticipate a challenging conversation or remind yourself of details so you don’t walk into a meeting cold. In contrast, on a busy day you dive right in. You do not step back and scope out the day. You are not quite sure who’s at the meeting or what it’s about. And it’s not only for lack of time. You may have a little time to work, but your mind is so focused on everything that needs to get done that your vision is obscured. You do not look past the first few meetings to what follows later.