Scarcity Makes You Stupid, Or Why I’ll Never eBay Again
Why do lonely people do things that push others away? Why do poor people do really dumb things that keep them poor? Why do busy people procrastinate only to create time bombs in their lives? Why do dieters become obsessed with food?
The answer is scarcity.
After reading this book, I began looking for patterns in my own life. Scarcity doesn’t always show up when your income is low, it’s more of a state of mind. I didn’t feel “scarce” as a single mom, but I have felt that way at times in the last few years even though my income and resources were much higher. (Interestingly, you can temporarily create the stupidity that comes with scarcity even among high income earners.)
For years I’ve done a little part-time eBay selling. Sometimes it was highly profitable and a good use of my time. But in the last three or four years, I’ve found that eBay selling was a total waste. In fact sometimes after accounting for eBay fees, PayPal fees and postage, I actually LOST money on auction after auction. I was literally paying people to take junk off my hands much of the time. And yet, until this past week, I persisted. Why?
For me, doing eBay selling is stupid. Last month I wrote an ebook that earned over $2,000 (after Amazon fees) in two weeks. I simply cannot afford to waste time doing eBay when I can earn real money so much faster.
For a short while, I played the “grocery store game” in which I saved coupons, created shopping lists based on what’s on sale and shopped at multiple stores. This practice left me stressed, I made food choices that didn’t align with my value system, and I tended to snap at my kids and feel exhaustion after a shopping trip. I quit that practice a long time ago. Scarcity is the reason I experienced that.
When I talk about scarcity in these examples, I mean little money or little time. When either thing is at a premium, we engage in what the authors call “tunneling”. Tunneling can work to your advantage, say if you’re a police officer with one bullet left in your gun, and the bad guy is barreling down on you. You’re much more likely to hit that target, because everything else fades into the background and time slows down.
However, tunneling can be a very bad phenomenon day in, day out. Tunneling makes you forget things that are important to you. In one excellent example, firefighters who are so focused on getting to the fire and putting it out often forget to buckle their seat belts. So, 25% of them die, not in a fire, but in an accident on the way there… because they forgot to buckle their seat belt.
Scarcity directly reduces mental bandwidth.
The authors define bandwidth as two things: one, our cognitive capacity – which includes logical reasoning, problem solving skills, information we can retain- and two, executive control – covering skills such as planning for the future, attention span, inhibiting desires and initiating things that are good for us, as well as impulse control.
The politically incorrect truth is that poor people do stupid things that keep them poor. They aren’t as likely to eat well, exercise, read books. They are more likely to abuse their kids and less likely to read to them. They take out payday loans and play the lottery. They don’t show up for free job training. They are even more likely to forget to take medication, even if it’s provided free from the government. People who are charitable and who attempt to help the poor find these disappointing truths over and over again. Why?
Scarcity begets more scarcity. When a person’s bandwidth is taxed by scarcity, they engage in self-defeating behaviors. There were a few fascinating studies from the book in which people, wealthy or poor, could essentially “lose” 10 to 15 IQ points, when an environment of scarcity was created.
What do we do when money is scarce? We borrow. Why? Because we’re tunneling. What makes sense in the short-term (getting into debt to pay rent this month) won’t be smart long-term (having to pay this debt back with interest).
Everyone does this to some extent. Behavioral economists call our bias towards the here and now hyperbolic discounting. We’re biased towards the present moment. We overvalue immediate pleasures (the chocolate chip cookie) at the expense of future benefits (a workout that will give us a leaner body).
I see the effects of time scarcity too. Busy people tend to neglect important-but-not-urgent tasks (such as talking to one’s spouse, exercising, spiritual pursuits, planning and goal-setting). Busy people procrastinate, they don’t clean their desks and cars, don’t balance their checkbooks. Procrastination is borrowing from your future self- it’s the payday loan of time. The double-edged sword of procrastination is that it creates more time poverty. Neglected items bleed you like “a thousand little cuts”, as the authors put it.
A perfect example that I’ve observed: the self employed person who doesn’t pay quarterly taxes because they “can’t afford it”. Tunneling and the stupid tax of scarcity makes this person forget that those taxes will come due, only with late fees, interest, and penalties.
So the question is, what can we do to avoid scarcity? Since it has all of these ill effects, how do we get rid of it?
In the case of money, the answer is fairly obvious. Create slack in the budget. This is likely the reason that finance guru Dave Ramsey encourages people to create a small emergency fund before attempting to pay off debt. Creating slack would also include doing what it takes to make more money.
It also helps to change the environment. Before planning your week and creating a schedule, ask yourself, “What activities create a large bandwidth tax?” People worry about managing their money, but managing our energy is also very important. After an activity that tends to drain willpower, we need to buffer that with something restful or easier. Put off making important decisions when bandwidth is taxed, and don’t discuss an important subject with your spouse at that time either. Create slack in your schedule by intentionally putting blocks of time for planning, relaxation and renewing.
Create reminders. This suggestion brings to mind Anthony Trollope, who is a bit of an inspiration to me. He was an extremely prolific writer who paid his butler a few extra pounds to wake him up early in the morning with coffee. He used that early morning time before he went to his full-time job to write. Maybe you need to hire a coach or find an accountability partner. Committing to things saves energy. For instance, if you want to spend more focused time with your kids, taking an art class together will make that happen without a new decision every time. Make it hard to fail by manipulating the environment. If you want to lose weight, don’t store anything junky in your house. Keep healthy snacks around and that’s all you’ll have to munch on. Put your walking shoes on first thing in the morning. Get a dog.
A few years ago I had a Bank of America checking account. At the time, the company had a genius idea. Every time I swiped my debit card, they would round up the purchases to the nearest dollar and deposit the difference into savings. For a time, they matched the deposit. It was effortless to save money! Of course, you could do the same thing on your own, just rounding up your purchases to the nearest dollar and when you reconcile your checkbook, transferring that slack into savings.
The authors suggest you convert vigilant behaviors into one time actions. For example, set up automatic bill pay if you tend to put off paying bills. Or have a transfer set up to automatically put money into savings when you’re paid, rather than waiting until the end of the week or month when there’s likely to be little left. I now use ING for my accounts, and have automatic transfers set up so that money funnels into my kid’s savings accounts as well as sub-accounts for yearly purchases (homeschooling curriculum, etc). Build a buffer during times of abundance.
Have you ever felt the effects of scarcity in your life?