Essay on Scarcity: Why Having Too Little Means so Much by Professors Mullainathan & Shafir

In 2013, Professor Sendhil Mullainathan from Harvard University, who is also one of the top economists within the discipline of the behavioral economics decided to release a new book known as "Scarcity: Why Having Too Little Means So Much", with his fellow scholar; Professor Eldar Shafir, who is a Princeton and cognitive psychologist. This particular book, Scarcity, studies the aspect of psychology of the scarcity as well as the mindset of scarcity that explains the perspective as well as perpetuating lack via restraining of someone's options. Typically, this given book, Scarcity, is an essential new literary work that helps in addressing the psychological aspect around poverty as well as how individuals' minds function differently when they generally lack something critical to the life upkeep. Based on their findings , the results indicate that experimentally, scarcity feelings put very actual boundaries regarding what exactly individuals have ability to see, and hence, these two authors provide strategic intercessions as the behavioral resolutions towards assisting in breaking these given cycles which cause the mindset of scarcity.

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Overall, Scarcity as a new book elaborates the further aspect why most individuals are impoverished. Based on the initial economic perspectives, sick individuals have numerous self-destructive behaviors than middle-class individuals. Generally, poor people do not plan effectively for their future as in comparison to the middle-class individuals, infected individuals have got less self-will as well as are also faster towards returning immediate gratification. Hence, these behaviors enhance poverty cycle amongst people in the society. Factually, this argument has been proven (Mullainathan et al. 290). The only controversy is why this particular argument becomes the case in the field of behavioral economics. For the conservatives, speaking, these specific behaviors lead to poverty amongst people in the society. On the other hand, for the liberals, also clearly speaking, poverty in various ways leads to these particular behaviors. It very easy to see how poverty stresses affect people. Through the multiple habits of eating, for instance, fruit, as well as vegetables, are more costly than several unhealthier foodstuffs, and hence may not be readily available for the poor people. However, there exist some behaviors that the liberal tries to illustrate. Even though health foods still become available as well as cheap for everyone irrespective of their social class in society, for instance, sick individuals keep on taking advantage of these healthy foods for less.

Recently, both Sendhil Mullainathan, who is one of the great economists from the Harvard University, as well as Eldar Shafir, one of the top psychologists at the Princeton, recommend an effective way for illustrating the reason why most poor individuals become less future-oriented than the wealthy individuals. Based on their arguments, one illustration in particular for the wrong decisions is known as scarcity, which is not of finance, but of what is known to the authors as bandwidth: which is the central part of people's thinking capacity that they usually use when making decisions. Lack of money by individuals always worries mind and as a result captures human's brain. According to the psychologists, worrying about cash reduces the cognitive capacity of human beings, particularly, human's general intelligence, which is usually applied by people to solve various problems affecting them. Similarly, worrying about money also lowers people's executive control, which is very essential in governing planning, the impulses as well as willpower. Typically, these factors are significant products of poverty.

According to these authors, the inherent capability of an individual does not reduce when one experiences scarcity. However, less of that particular scarcity may be readily available for consumption. For example, when someone puts a middle-class individual into the scarcity situation, definitely, he or she will behave just as the sick person. These two authors, as well as other two academic fellows, organized a team of researchers who got tasked with approaching the shoppers at a particular mall in the New Jersey state. They asked individuals various questions based on their incomes and then made classification secretly without their consent, as either they are sick or maybe rich. After that, the researchers asked a given question: Your vehicle requires repair and maintenance which will cost you about $140. You can take motor loan, make full payment, or maybe postpone the repair services. How does one decide in such situation? After answering that particular question, the researchers decided to take tests that measured fluid intelligence as well as cognitive control. Generally, both poor, as well as wealthy individuals, equally performed well in that particular test. The same team of researchers conducted similar findings on the farmers of sugarcane in India, by testing their intelligence immediately after the sugarcane harvest, when they have a lot of money and that before the autumn when they were somehow inferior. The same sugarcane farmers achieved about 25% more questions correct regarding the intelligence test during the period when they were rich, while created about 15% more test errors concerning the executive control tests when they generally got poor.

Is this aspect indicating stress? In general, everyone is well aware of how harmful is stress. Nevertheless, both authors suggest that impacts of scarcity still proceed. For example, its capture of the human's brain leads individuals towards a big tunnel, which involves people only put all their focus towards solving the current (emergency) problem. For instance, when the date for paying rent becomes due, people use money which could have been applied to repair the car, not forgetting the fact that this plan will stop one's vehicle from getting maintenance services. Hence, in this manner, scarcity aspect makes a violent circle. Frequently, tunneling leads to more borrowing by people to solve emergency issues. For the case of the poor people, they consider borrowing as costly. The usually take high interest while paying back their investments, purchase on installment terms, pay large amounts of the credit fees, as well as excitement. They generally borrow by paying for the bills, later on, this means paying a large portion of their monthly income to pay the late fees as well reconnection fees. Thus, these outcomes nevertheless, get found outside the scarcity tunnel, until such a period that paying for various bills become people's new emergency issues.

In the scarcity book, the authors illustrated that with the similar mentality of the scarcity that gets applied towards the cash-poor, similarly applies to the individuals who may be overly busy and also to those maybe dieting. The aspect of deficiency becomes one of the good news for people, as individuals can design their ways around it. Being aware of the psychological scarcity as well as behavioral problems it generally produces, "can go some way toward improving the modest returns of anti-poverty interventions," Mullainathan and Shafir say.

Examples of Anti-Poverty Interventions

Make Good Decisions Automatic

Since most people can never be counted on making right decisions when in the tunnel, they can make these choices automatic. A particular decision for automating individual's preferences will help in eliminating the entire future chances for screwing up. For example, one primary method is through switching to the default; rather than making enrolment for $21 voluntary savings plan, make not to the optional registration. This strategy can always be applied to the decisions related to the external tunnel, such as building savings.

Providing better alternatives for borrowing

This strategy applies to those employers with minimum-wage employees who frequently raise complaints that these employees are unfit for the task, very unfriendly to the consumers as well as distracted. The main reason may be that most of them are devoting little bandwidth towards their tasks since they are regarding how to survive through their wages. The Scarcity Theory supports the suggestion that making payment for them a living wage would increase productivity of the employees. However, since some of the employers may reject this suggestion, the scarcity book proposes that the employers remove some penalties that come through with the borrowing.

Designing affordable services for needy individuals in taking up less bandwidth

Generally, sick individuals have inadequate money, but most people are not concerned about their scarcity of the bandwidth, and that it should also affect the services. One of the most effective services is referred to as the Single Stop, which usually functions for about 95 sites in a given country, where the low-income earners can happily send their application for such benefits, conduct their taxes as well as receive both legal and financial advice.

Structuring Various Incentives Towards Putting Them Inside Tunnel

Given that the scarcity forces people towards the tunnel, but only put more emphasis on what is within the tube, the incentives, as well as penalties, will operate efficiently and effectively when they also get included inside the tunnel. This particular strategy means very short deadlines as well as quick rewards, maybe through numerous installments. For example, advising individuals that they can join welfare membership for a maximum of 3 years may be ineffective. That given deadline may not be part of tunnel until they reach the second year and eleven months, as this may be very late for one to begin searching for jobs. The two authors refer this particular situation as the worst of worlds as they write, "it penalizes but fails to motivate."

Nevertheless, most individuals argue that welfare leads to laziness among individuals. However, majority of people depend on the aspect welfare to survive. Factually, numerous programs of health have strict limits specifically designed to ensure sufficient encouragement of the unemployed persons towards returning to make employment payment. Similarly, scarcity of time leads to the deadline, leading to the receiver of the program to make priority looking as well as securing new employment sources. The two authors suggest availability of time enables individuals to get unmotivated for securing another task and also to remain unemployed.

Conclusion

In general, scarcity influences the overall parts of human life. It makes individuals towards focusing as well as shuffling available resources mainly for focusing on the as well as addressing urgent jobs. Similarly, bandwidth assists in mitigating the scarcity influence, since it leads to planning for both future as well as investments in various activities as well as available resources that will assist in the entire process.

Works Cited

Bertrand, Marianne, Sendhil Mullainathan, and Eldar Shafir. "A behavioral-economics view of poverty." American Economic Review 94.2 (2004): 419-423.