PerspectiveEconomics

Implications of Scarcity

Science  02 Nov 2012:
Vol. 338, Issue 6107, pp. 617-618
DOI: 10.1126/science.1230292

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Summary

Are the very poor really different? Modern development economics has struggled to answer this question, which turns F. Scott Fitzgerald's indictment of the rich on its head. Yet, the effects that poverty has on people's behavior have far-reaching implications. What price to charge for health and education? What specifications to include in research and development goals for new products? What information to include in public education campaigns? Answers to all these questions depend on whether we believe that the poor are “efficient” optimizers and arrive at first-best outcomes given their circumstances (1); optimizers who often achieve second-best outcomes as a result of missing markets; or not fully rational in the spirit of (24). On page 682 of this issue, Shah et al. (5) bring evidence of a distinct claim about what it is that makes the poor different.

The authors present data from laboratory experiments showing that people with smaller endowments of both time and “tries” perform worse in simple games: They borrow too much and spend inefficient amounts of time making decisions. This experimental evidence is consistent with the claim that scarcity, a broader concept than economic poverty, engages the mind, and that this engagement causes neglect along other dimensions, leading to substandard outcomes. The examples given by the authors are easily accessible to readers of this journal: Worrying about paying for groceries can make it hard to plan accurately to have money to make rent; stressing out over a looming work deadline can have the knock-on effect of poor planning for routine tasks.