How facing a scarcity – of cash, time, even play – can reset the way we think

For Eldar Shafir, scarcity is not just a measure of quantity, it's a governing principle – one that affects all of us at some point, whether we are forced to deal with a severe shortage of time, money or other limited resources. These experiences have a payoff: They focus the mind. But they also come with a heavy cost to judgment and decision-making.

At Princeton University, where he is a professor of psychology and public affairs, Prof. Shafir's work has lately looked at why those who are poor seem to make bad decisions, often detrimental to their interests.

What he has found is that, like chief executive officers in a fiercely competitive economy, those who are living on meagre incomes are often frantically juggling resources – money, time and health – in a high-stakes game where the consequences of making an error can be severe.

The brainpower required to play this game saps mental capacity – what Prof. Shafir and his colleagues call "cognitive bandwidth." The effect is relentless; being poor means that there is no vacation, no putting off demands on that bandwidth. And because bandwidth is finite, there is little left for careful decision-making or beneficial long-term planning.

Prof. Shafir argues that this research should be a wake-up call for policy-makers trying to improve conditions for the poor. But he also says we all have something to learn by looking more thoughtfully at the role scarcity plays in our lives – whether we're coping with deadlines at the office or calculating the trade-offs that go with eating a rich dessert.

Prof. Shafir has teamed up with Harvard economist Sendhil Mullainathan to explain this broader version of their theory in their new book Scarcity: Why Having Too Little Means So Much. And this week, he will be at Building Better Lives and Communities, a one-day forum in Toronto organized by the Canadian Institute for Advanced Research.

How did your studies of people coping with poverty lead you to think of scarcity as an important factor in daily life?

We started realizing that what we were seeing is a mindset that comes from not having enough – and it needn't only be money. It could be time or something else.

Can you describe that mindset?

Scarcity focuses our attention to the exclusion of all else. In the book, we describe a starvation experiment performed at the University of Minnesota in which male volunteers were placed on a progressively calorie-reduced diet until they had just enough food to avoid permanent harm. Over time, their mental states changed. They didn't just think more about food, they were unable to think about anything else.

What does that tell us about

people in general?

People have very limited cognitive capacity. We discovered that scarcity hijacks a lot of it and leaves too little for many of the things we need to do. That's going to have personal and policy implications.

Like what?

Policy-makers should be aware that programs designed to relieve economic stress may be less effective if they impose a high cognitive load on participants. It would never occur to you to charge a poor person $200 to participate in a benefits program. But by being inflexible with schedules or using 30-page application forms, we're taxing the poor – unnecessarily tasking their limited bandwidth. And bandwidth is the single resource we use for everything. So if you can make it easier for someone who is poor to do their banking, for example, the most important change may not be in their finances but in their parenting, because you've liberated some bandwidth for other things.

How does this work for other forms of scarcity, such as a lack of time?

The basic psychology is quite similar. If you are pulling an all-nighter for work, you are really focused and you may actually do a very good job. But at the same time you neglect lots of other things that need your attention and do less well on those.

Is there a way to fix that?

It's a challenge, because scarcity creates a tunnelling effect that tends to block out competing demands.

Has your own appreciation of scarcity changed?

When we say that people who are preoccupied with something are paying less attention to something else – well, that doesn't sound surprising. What's more surprising to me is the size of the effect. When money is scarce, you're not just a tiny bit more distracted. In our experiments, the distraction of poverty can cause subjects to drop about 13 IQ points in a matter of minutes. The effect is large. It's not unlike using a cellphone in a car. We think it may make us a bit less attentive, but in fact it's like being legally drunk behind the wheel. That's kind of stunning.