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Economist Mullainathan Discusses Scarcity of Time and Money in Levitt Lecture

Sendhil Mullainathan
Sendhil Mullainathan

Whether tight on cash or short on time, many us understand the concept of scarcity. Although scarcity is often analyzed through the lens of economics, Sendhil Mullainathan, professor of economics at Harvard University, has added the lens of psychology to his work.

Mullainathan, co-author of Scarcity: Why Having Too Little Means So Much, explained the major concepts of his work to an overflowing Chapel audience on Oct. 23. Paul Hagstrom, the Levitt Center’s Director of Inequality & Equity Program and Hamilton professor of economics, introduced Mullainathan for the Levitt Center-sponsored event.

Mullainathan began his talk by drawing comparisons between individuals who are “money poor” and those who are “time poor,” explaining how scarcity influences both in the same way, although not to the same extent. Evolutionarily, animal and human brains have developed a “scarcity alert,” which forces the individual to think about whatever it is he or she is lacking.

Mullainathan explained how this is advantageous in certain circumstances; for example, when writing a paper to meet an immediate deadline. The brain forces the thought of that essay into the conscious mind and thus creates stress, allowing one to focus and finish the paper with minimal distractions.

This fixation, although helpful in certain circumstances, also creates the problem of restricted “tunnel vision.” Mullainathan clarified how this forces the important, but non-urgent, tasks to be shelved for later, which increases our workload “debt.” This is similar to payday loans, which solve immediate money crises for impoverished individuals but simultaneously draw them into a “debt trap,” owing the original amount in addition to interest.

To address the difference between individuals who are “money poor” and those who are “time poor,” Mullainathan introduced the concept of mental bandwidth. Bandwidth, in this context, refers to the ability to utilize executive functioning, full intelligence, and self-control. Ideas that detract from using full bandwidth contribute to “bandwidth tax,” which varies depending on the type of scarcity.

Drawing on a plethora of psychological studies, including his own work, Mullainathan made clear that bandwidth tax is higher in individuals from a lower socioeconomic status. Although it is out of their control, Mullainathan described these individuals by saying, “It’s as if they have less mind all around,” due to the pervasiveness of thoughts about scarcity and the ability of these thoughts to stunt or override executive functioning.

Mullainathan made sure to clarify that “the poor do not have less bandwidth,” that is to say, they aren’t stupid or lazy, “rather, every person, when they are poor, has a higher bandwidth tax” upon which they have no conscious control. While the “time poor” individual has the ability to take a vacation and receive a mental break, the “money poor” individual does not enjoy the same luxury. Their situation resembles the payday loans “debt trap,” spiraling further into poverty and increasing their bandwidth tax.

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