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Scarcity: Why Having Too Little Means So Much

“The biggest mistake we make about scarcity is we view it as a physical phenomenon. It’s not.”

We’re busier than ever. The typical inbox is perpetually swelling with messages awaiting attention. Meetings need to be rescheduled because something came up. Our relationships suffer. We don’t spend as much time as we should with those who mean something to us. We have little time for new people; potential friends eventually get the hint and stop proposing ideas for things to do together. Falling behind, turns into a vicious cycle.

Does this sound anything like your life?

You have something in common with people who fall behind on their bills, argue Harvard economist Sendhil Mullainathan and Princeton psychologist Eldar Shafir in their book Scarcity: Why Having Too Little Means So Much. The resemblance, they write, is clear.

Missed deadlines are a lot like over-due bills. Double-booked meetings (committing time you do not have) are a lot like bounced checks (spending money you do not have). The busier you are, the greater the need to say no. The more indebted you are, the greater the need to not buy. Plans to escape sound reasonable but prove hard to implement. They require constant vigilance—about what to buy or what to agree to do. When vigilance flags—the slightest temptation in time or in money—you sink deeper.

Some people end up sinking further into debt. Others with more commitments. The resemblance is striking.

We normally think of time management and money management as distinct problems. The consequences of failing are different: bad time management leads to embarrassment or poor job performance; bad money management leads to fees or eviction. The cultural contexts are different: falling behind and missing a deadline means one thing to a busy professional; falling behind and missing a debt payment means something else to an urban low-wage worker.

What’s common between these situations? Scarcity. “By scarcity,” they write, “we mean having less than you feel you need.”

And what happens when we feel a sense of scarcity? To show us Mullainathan and Shafir bring us back to the past. Near the end of World War II, the Allies realized they would need to feed a lot of Europeans on the edge of starvation. The question wasn’t where to get the food but, rather, something more technical. What is the best way to start feeding them? Should you begin with normal meals or small quantities that gradually increase? Researchers at the University of Minnesota undertook an experiment with healthy male volunteers in a controlled environment “where their calories were reduced until they were subsisting on just enough food so as not to permanently harm themselves.” The most surprising findings were psychological. The men became completely focused on food in unexpected ways:

Obsessions developed around cookbooks and menus from local restaurants. Some men could spend hours comparing the prices of fruits and vegetables from one newspaper to the next. Some planned now to go into agriculture. They dreamed of new careers as restaurant owners…. When they went to the movies, only the scenes with food held their interest.

“Scarcity captures the mind,” Mullainathan and Shafir write. Starving people have food on their mind to the point of irrationality. But we all act this way when we experience scarcity. “The mind,” they write, “orients automatically, powerfully, toward unfulfilled needs.”

Scarcity is like oxygen. When you don’t need it, you don’t notice it. When you do need it, however, it’s all you notice.

For the hungry, that need is food. For the busy it might be a project that needs to be finished. For the cash-strapped it might be this month’s rent payment; for the lonely, a lack of companionship. Scarcity is more than just the displeasure of having very little. It changes how we think. It imposes itself on our minds.

And when scarcity is taking up your mental cycles and putting your attention on what you lack, you can’t attend to other things. How, for instance, can you learn?

(There was) a school in New Haven that was located next to a noisy railroad line. To measure the impact of this noise on academic performance, two researchers noted that only one side of the school faced the tracks, so the students in classrooms on that side were particularly exposed to the noise but were otherwise similar to their fellow students. They found a striking difference between the two sides of the school. Sixth graders on the train side were a full year behind their counterparts on the quieter side. Further evidence came when the city, prompted by this study, installed noise pads. The researchers found this erased the difference: now students on both sides of the building performed at the same level.

Cognitive load matters. Mullainathan and Shafir believe that scarcity imposes a similar mental tax, impairing our ability to perform well, and exercise self-control.

We are all susceptible to “the planning fallacy,” which means that we’re too optimistic about how long it will take to complete a project. Busy people, however, are more vulnerable to this fallacy. Because they are focused on everything they must currently do, they are “more distracted and overwhelmed—a surefire way to misplan.” “The underlying problem,” writes Cass Sunstein in his review for the New York Review of Books, “is that when people tunnel, they focus on their immediate problem; ‘knowing you will be hungry next month does not capture your attention the same way that being hungry today does.’ A behavioral consequence of scarcity is “juggling,” which prevents long-term planning.”

When we have abundance, we don’t have as much depletion. Wealthy people can weather a shock without turning their lives upside-down. The mental energy needed to prevail may be substantial, but it will not create a feeling of scarcity.

Imagine a day at work where your calendar is sprinkled with a few meetings and your to-do list is manageable. You spend the unscheduled time by lingering at lunch or at a meeting or calling a colleague to catch up. Now, imagine another day at work where your calendar is chock-full of meetings. What little free time you have must be sunk into a project that is overdue. In both cases time was physically scarce. You had the same number of hours at work and you had more than enough activities to fill them. Yet in one case you were acutely aware of scarcity, of the finiteness of time; in the other it was a distant reality, if you felt it at all. The feeling of scarcity is distinct from its physical reality.

Mullainathan and Shafir sum up their argument:

In a way, our argument in this book is quite simple. Scarcity captures our attention, and this provides a narrow benefit: we do a better job of managing pressing needs. But more broadly, it costs us: we neglect other concerns, and we become less effective in the rest of life. This argument not only helps explain how scarcity shapes our behaviors; it also produces some surprising results and sheds new light on how we might go about managing our scarcity.

In a way, this explains why diets never work.

Scarcity: Why Having Too Little Means So Much goes on to discuss some of the possible ways to mitigate scarcity using defaults and reminders.

Forbes Interview

I was recently interviewed in Forbes.

Shane Parrish is on a mission to make you think, and think better. With over 30,000 subscribers — and that number growing quickly — Shane runs Farnam Street, an intellectual hub of curated “interestingness” that covers topics like human misjudgment, decision making, strategy, and philosophy. He exposes his readers to big ideas from multiple disciplines, adding tools to their problem-solving toolbox that improve decision making.

As an avid reader of FS myself, I recently caught up with Shane to discuss its genesis, how he works through a problem, why he was frustrated with his education, and, of course, Justin Bieber.

Here are two excerpts, in particular, I think you’ll enjoy.

The first is on my experiences doing an MBA.

Beshore: What was the core problem with your MBA program?

Parrish: There is a big difference between knowing what something is called and understanding. My MBA was all about vocabulary. For me, it was too much memorizing and regurgitating. …

The second one focuses on incorporating mental models into your thinking.

Beshore: How can we use these mental models to improve our decision making?

Parrish: When you come across a difficult decision, you really want to have a double filter that shifts your mind from reactive to rational. The first filter is running through your mental models and determining the factors that govern the situation. If I look at this through the lens of evolution, what do I see? What about supply and demand? What are the incentives?

The second filter is how you might be fooling yourself. What’s happening subconsciously? Am I only looking at a small subset of data? Am I in love with my solution? Am I biased by authority?

One of the added benefits of this approach is that when you make a bad decision, and you will, you now have a mental framework where you can account for your mistake in the future. If you failed to consider something you should have, you can easily identify it and account for it. So you’re always getting incrementally better and, over a long life, those increments will make a huge difference.

Beshore: Can you give a hypothetical example of how this system of thinking might play out?

Parrish: Looking at problems through a single discipline often leads to the wrong conclusion. For example, let’s say you’re the CFO of a textile company. The industry is not profitable and plagued with overcapacity, with only one company posting profits in the last 12 months. Your board is pressing you to demonstrate a credible path to profits.

A salesman shows up at your door one day, offering new processing equipment that is 50 percent more efficient. It will save your company a ton of money, improve margins, and pay for itself within only a few years. You verify his claims and determine that by purchasing this equipment, you’d get a 20 percent pre-tax return on your investment. Should you do it? Most people would say yes, but I’d say no.

If you only look through a financial lens, it seems to make sense. But that’s not going far enough. The second question is, “Where will the savings go?” What will likely happen is you’ll install this machine and either keep prices the same (to improve margins) or lower prices (to gain market share). But the salesman is already on the way to your competitors. Only now, he can say they must install this to stay competitive. The salesman points to your increasing market share or big margins, ensuring your competitor purchases the same equipment. Eventually, everyone has the same equipment, plummeting prices. Things go back to the way they were, only now you have more capital invested in the business. But that salesman will be back next year with a newer, improved version.

So from a mental model perspective, we can just list some of the ones at play: incentives (the salesman is not your friend), game theory, and The Red Queen Effect (where you need to put continuously more money in to keep your same position). Of course, I didn’t come up with this myself. Warren Buffett faced a similar dilemma in the early 1980s with Berkshire Hathaway’s unprofitable textile business.

Avoiding Ignorance

This is a continuation of two types of ignorance.

You can’t deal with ignorance if you can’t recognize its presence. If you’re suffering from primary ignorance, it means you probably failed to consider the possibility of being ignorant or you found ways not to see that you were ignorant.

You’re ignorant and unaware, which is worse than being ignorant and aware.

The best way to avoid this suggests Joy and Zeckhauser, is to raise self-awareness.

Ask yourself regularly: “Might I be in a state of consequential ignorance here?”

They continue:

If the answer is yes, the next step should be to estimate base rates. That should also be the next step if the starting point is recognized ignorance.

Of all situations such as this, how often has a particular outcome happening? Of course, this is often totally subjective.

and its underpinnings are elusive. It is hard to know what the sample of relevant past experiences has been, how to draw inferences from the experience of others, etc. Nevertheless, it is far better to proceed to an answer, however tenuous, than to simply miss (primary ignorance) or slight (recognized ignorance) the issue. Unfortunately, the assessment of base rates is challenging and substantial biases are likely to enter.

When we don’t recognize ignorance, the base rate is extremely underestimated. When we do recognize ignorance, we face “duelling biases; some will lead to underestimates of base rates and others to overestimates.”

Three biases come into play while estimating base rates: overconfidence, salience, and selection biases.

So we are overconfident in our estimates. We estimate things that are salient – that is, “states with which (we) have some experience or that are otherwise easily brought to mind.” And “there is a strong selection bias to recall or retell events that were surprising or of great consequence.”

Our key lesson is that as individuals proceed through life, they should always be on the lookout for ignorance. When they do recognize it, they should try to assess how likely they are to be surprised—in other words, attempt to compute the base rate. In discussing this assessment, we might also employ the term “catchall” from statistics, to cover the outcomes not specifically addressed.

It’s incredibly interesting to view literature through the lens of human decision making.

Crime and Punishment is particularly interesting as a study of primary ignorance. Raskolnikov deploys his impressive intelligence to plan the murder, believing, in his ignorance, that he has left nothing to chance. In a series of descriptions not for the squeamish or the faint-hearted, the murderer’s thoughts are laid bare as he plans the deed. We read about his skills in strategic inference and his powers of prediction about where and how he will corner his victim; his tactics at developing complementary skills (what is the precise manner in which he will carry the axe?; what strategies will help him avoid detection) are revealed.

But since Raskolnikov is making decisions under primary ignorance, his determined rationality is tightly “bounded.” He “construct[s] a simplified model of the real situation in order to deal with it; … behaves rationally with respect to this model, [but] such behavior is not even approximately optimal with respect to the real world” (Simon 1957). The second-guessing, fear, and delirium at the heart of Raskolnikov’s thinking as he struggles to gain a foothold in his inner world show the impact of a cascade of Consequential Amazing Development’s (CAD), none predicted, none even contemplated. Raskolnikov anticipated an outcome in which he would dispatch the pawnbroker and slip quietly out of her apartment. He could not have possibly predicted that her sister would show up, a characteristic CAD that challenges what Taleb (2012) calls our “illusion of predictability.”

Joy and Zeckhauser argue we can draw two conclusions.

First, we tend to downplay the role of unanticipated events, preferring instead to expect simple causal relationships and linear developments. Second, when we do encounter a CAD, we often counter with knee-jerk, impulsive decisions, the equivalent of Raskolnikov committing a second impetuous murder.

References: Ignorance: Lessons from the Laboratory of Literature (Joy and Zeckhauser).

Never Heard of It

I’ve been thinking about this ever since someone sent me Lyza’s beautiful article Never Heard of It.

Not long before, I had started noticing a habit I had, a tendency to nod or make vague assentive noises when people around me talked about things I’d never heard of.

When I did this, my motivation wasn’t to claim knowledge I didn’t have as much as to deflect a need for outright admission of ignorance. I’d let the moment glide past and later scamper off to furtively study up.

I recognized this in myself, this fear of looking like I didn’t know what the hell I was doing, and I didn’t love it. At the same time, there was so much to keep on top of … that to be entirely informed about all of these things wasn’t feasible either, no matter the level of effort.

I decided that I wanted to come to terms with not knowing everything, to be able to say never heard of it and not feel panicky.

Her fear, probably one we all share at some level, wasn’t that she didn’t want to look like she didn’t know what she was doing, but maybe that she actually didn’t know what she was doing.

And no one wants to draw attention to themselves by asking a ‘stupid’ question. Or pointing out they don’t know.

In group settings, this has lead to what psychologists call ‘pluralistic ignorance,’ a psychological state characterized by the belief that one’s private thoughts are different from those of others. This causes huge problems in organizations.

Consider an example. You’re in a large meeting with the senior management of your organization to discuss an initiative that spans across the organization and involves everyone in the room. You hear words come out, someone may even ask you, do you follow? And yes, of course, you follow — you don’t want to be the only person in the room without a clue.

“To admit to ignorance, uncertainty or ambivalence,” writes Tim Kreider, “is to cede your place on the masthead, your slot on the program, and allow all the coveted eyeballs to turn instead to the next hack who’s more than happy to sell them all the answers.” No wonder we have such a hard time owning up when we don’t know something.

So you walk out of the room, wondering what you just agreed to do. You have no idea. Your stress goes up, you run around asking others, and quickly discover they are just as confused as you are.

This project isn’t doomed, it’s just a lot more work now than it needs to be. You either guess at what was intended and take a leap of faith, or you spend an endless amount of time and organizational energy chasing this down after the meeting.

Information is coming to us with greater velocity and magnitude. “I don’t know” might be the most powerful admission you can make in the internet era.

The Surprising Ways Friends Make Us Who We Are

“Friendships are the least institutionalized and most voluntary social relationship we have.”

In Friendfluence: The Surprising Ways Friends Make Us Who We Are, Carlin Flora explores “the powerful and often unappreciated role that friends—past and present—play in determining our sense of self and the direction of our lives.”

What is Friendship?

Friendships are the least institutionalized and most voluntary social relationship we have. Our friends can cycle in and out of our hearts and calendars; they can be our “everything” or just a refreshing anomaly, a small pop of color in a busy social landscape. Amorphous in nature, friendship fills in the cracks left open by our personalities, or backgrounds, or temporary circumstances. Friends adapt to our needs and styles, and we to theirs. Perhaps we’ll never arrive at a precise definition, but descriptions of true friends can bring a jolt of recognition.

De Amicitia
Cicero, in somewhere around 44 BC, wrote De Amicitia, a beautiful piece on friendship. In it, he writes:

[H]ow can life be what Ennius calls “the life worth living,” if it does not repose on the mutual goodwill of a friend? What is sweeter than to have someone with whom you may dare discuss anything as if you were communing with yourself? How could your enjoyment in times of prosperity be so great if you did not have someone whose joy in them would be equal to your own?

Cicero defines friendship as “complete sympathy in all matters of importance, plus goodwill and affection.”

Montaigne was no stranger to friendship either. He penned a work on the subject “Of Friendship,” in 1580. Portraying his usually strong bond with Étienne de La Boétie.

Friendship as Love

The closest of friendships contain the mysterious spark of attraction and connection as well as drama, tension, envy, sacrifice, and love. For some, it’s the highest form of love there is.

Predicting Friendship Duration

The longer you are friends with someone, the more likely you’ll continue to be friends. Time spent as friends is the best predictor of friendship longevity.

Parenting and Creating a Sense of Entitlement
While The Secrets of Happy Families primarily concerns the present happiness of your family, long term implications need to be considered. Maximizing the short term at the cost of the long term needs to be considered. Often what’s great in the short term creates horrible outcomes. For instance, you could go shoot meth right now. You’d wreck your life, but it’d be a great few hours to start.

Some researchers believe that parents who were concerned more with being “liked” as a friend than with being respected as a leader caused the uptick in feelings of entitlement and narcissistic traits among today’s young people, compared to the youth of 1979.

What Does Friendship Mean to You?

If I ask you, “What does friendship mean to you?” you might say loyalty or compatibility, in the abstract. However, if I ask you why eight different people are your friends, I’ll bet you would describe their individual qualities, the circumstances in which you met, and the traits they tend to bring out in you— this one invites you to fun parties and that one challenges you to be a better person. In other words, asking people to define friendship in the first place is a bit like asking people to define flowers. Friends have baseline characteristics just as flowers are basically the blossoms of a plant, but beyond that they are unique and thrive under very different conditions.

As hard to grasp as it is, friendship brings with it a host of benefits to mood and health.

Solid friendships can help you shed pounds, sleep better, stop smoking, and even survive a major illness. They can also improve memory and problem-solving abilities, break down prejudices and ethnic rivalries, motivate people to achieve career dreams, and even repair a broken heart.

We are generally unaware that our friends influence everything “from our basic linguistic habits to our highest aspirations.” The converse is also true. Without friends it’s easier to spiral downward.

[H]aving few social ties is an equivalent mortality risk to smoking 15 cigarettes a day and even riskier than being obese or not exercising!

Evolution and Friends

Evolutionary psychologists theorize that friendship has roots in our early dependence on others for survival. Having a friend help you hunt, for instance, made it more likely that you and your family—and your hunting buddy and his family—would have food cooking over the fire.

Just because we don’t build fires and hunt in packs doesn’t mean we don’t need friends today.

Anthropologists have found compelling evidence of friendship throughout history and across cultures. Universally, we’re built to care deeply about select people outside of our kin group. It’s hard to construct a personal life history that doesn’t include important parts for one’s friends.

Sociologist Eric Klinenberg points out that “more people live alone now than at any time in history.” So the argument goes that if more people are living outside of traditional family structures friends become even more important.

More than for single people, friendships often help marriages.

Friends are also important for parents and those who are married or living with a romantic partner. Time with friends is actually our most pleasant time: We are most likely to experience positive feelings and least likely to experience negative ones when we are with friends compared to when we are with a spouse, child, coworker, relative, or anyone else. We’re not surprised when we hear people grumbling about how they have to attend a family holiday party, yet it would puzzle us to hear the same people complain about having to go to a celebration full of their friends.

Friends or Families?
Why do we prefer spending time with our friends over our families?

Some say it is because we pick our friends (God’s consolation prize) while we don’t pick our families. Insofar as we choose our spouses and decide to have children, we do have some say over our families. More likely, our time with our pals is more enjoyable because of our expectations. When we’re with friends, we bring sympathy and understanding and leave out some of the grievances we carry into interactions with family members. We tend to demand less from friends than we do from relatives or our romantic partners, and each friend provides us distinct benefits.

Busy Parents Should Stop Considering Friendships a Nonessential Luxury.

When working parents devote every scrap of free time to their children, their friendships are the first thing to slide. We know from research (and our own intuition quickly confirms this) that expecting one’s spouse to be everything is a recipe for disaster. Leaning on friends for intellectual stimulation, emotional support, and even just fun activities relieves the pressure of the overheated nuclear family. Busy moms and dads would do well to stop considering friends to be a nonessential luxury.

Time With Friends

The more friends want and enjoy our company, the more we tend to enjoy theirs, whereas lovers sometimes become more desirable the more they pull away from us.

Friends Make Work Better

If you can count at least three dear friends at the office, you are 96 percent more likely to be extremely satisfied with life in general.

As the role of friendship seems to expand in our culture, Friendfluence: The Surprising Ways Friends Make Us Who We Are, offers a look at the often under-appreciated influence it has on “our personalities, habits, physical health, and even our chances of success in life.”