Poverty Makes You Stupid

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Why is it so difficult for the poor to break the cycle of poverty? Why is it so hard for the busy to stop procrastinating and for the lonely to find companionship? Behavioral economists Sendhil Mullainathan and Eldar Shafir argue in their just published book, Scarcity: Why Having Too Little Means So Much, that the problem with poverty (and poor time management and loneliness) is… the effect of scarcity on cognitive ability. Poverty makes us dumb.

Behavioral economics is the study of the social and psychological factors behind economic decisions. Economic decisions are often decisions about managing scarce or limited resources, such as time or money. Mullainathan and Shafir analyzed past research on hunger and conducted new experiments aimed at measuring the effects of scarcity on IQ.

The past research was a study for American war planners who wanted to know how best to feed the millions of hungry refugees in post-WWII Europe. A little at a time? A lot all at once? A group of volunteers were put on a severely restricted diet and monitored. The starving volunteers soon began to obsess over food. Some talked about favorite dishes and recipes. Others spent hours comparing food prices in newspaper grocery advertisements. The volunteers' scarcity — their lack of food — had pushed all other considerations aside. Much of their thinking "bandwidth" was consumed by thoughts of food. One explained afterward that the psychological effects of hunger were worse than the physical effects: "because it made food the most important thing in one's life…food became the one central and only thing really in one's life."

In one of their own experiments, Mullainathan and Shafir presented a group of people with a dilemma: spend $300 to repair a car now, or wait a little while and hope it keeps going? Would it be an easy decision to make? They next gave the group a series of tests to measure IQ. The poor members of the group and the well-off members showed no significant difference in intelligence.

A second experiment asked the same question, but the cost of the repair was $3000. Again participants were given IQ tests afterward. This time the well-off performed as before. But the poor did much worse — as much as 10-12 IQ points worse. How much is that? It's about the difference between you in the morning after a good, restful night's sleep and you in the morning after pulling an all-nighter. Mullainathan and Shafir argue that this drain on IQ is a result of loss of mental bandwidth as the poor struggled to meet the challenge of a $3000 car repair bill. Where would the money come from? What combination of borrowing, sacrifice, and effort would they need to get it?

For the wealthy those questions never arose because for them, the answer is easy (pay for it out of savings or put it on the credit card). They had plenty of bandwidth left over for the follow up IQ test. Life is easier when you're rich. You can afford to solve your problems.

Making Life Easier for Those Caught Short

Scarcity does more than make life difficult for the poor by offering them plenty of challenges. Scarcity saps them of the tools they need to get ahead. You can't swim far if you're always treading water. You can't budget for savings or make a plan to acquire marketable skills, or build your credit if you're always thinking up ways to pay for the latest crisis. But it gets worse. Other studies have shown that reduced bandwidth (or "decision fatigue") results in loss of self-control (this is true for rich and poor alike). Many of the characteristics we ascribe to the poor — poor impulse control, lack of motivation — as explanations for their poverty may actually be the result of lack of mental bandwidth caused by poverty.

In reviews of their work and in interviews, Mullainathan and Shafir suggest a couple of policy and lifestyle changes that "break into the tunnel," so that diminished economic reasoning doesn't trap the poor in the cycle. They suggest bill pay reminders, automatic paycheck deposit into savings (by default), simplified credit terms, protected savings similar to 401(k) accounts that can be borrowed from, at high interest. (Instead of borrowing from a payday lender, one would borrow from one's own savings — and repay with interest.) The goal of the book, and of these suggestions, is to find new incentives that work within the confined mental context poverty exacts while also freeing up bandwidth to think and plan ahead for other goals.

How to Thrive Amid Your Own Scarcity

Much of the discussion around Mullainathan and Shafir's work is focused on economic scarcity — poverty — but the researchers point out that their ideas apply wherever resources are scarce. Those of us with a lot to do and a short time to do it suffer from tunnel vision and lack of planning ability, too. The emails keep piling up and the deadlines keep slipping. What can we borrow from this look at scarcity to help us get caught up?

Get Inside the Tunnel

Understand that while you're burdened by your scarcity of time you won't be able to think as clearly or plan ahead very well. You're gonna be here awhile. Don't let it frustrate you. (See also: 20 Free Ways to Relieve Stress)

Automate

If the rich can count on their money to buy them out of jams, busy people can rely on their productivity tools to buy them more time. Create email filters. Build file organization systems. Use checklists. Set up reminders for far off deadlines. (See also: The Power of Lists)

Make More Room in Your Head

All those to-dos you are trying to track and remember? Write them down. Someplace you'll remember to look for them. It might be a simple moleskin notebook. It might a complicated Getting Things Done app hosted in the cloud. Wherever you put it, just get that stuff out of your head so you have more room to think. (See also: Personal Productivity Rules)

How do you deal with scarcity?

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