Sendhil Mullainathan, 2014 Sheffrin Lecture at UC Davis

Welcome, everyone,
to the Sheffrin Lecture in Public Policy. I’m Ron Mangun. I’m the Dean of the Division of Social
Sciences here, and it’s my privilege to welcome you to the fifth annual
Sheffrin Lecture in Public Policy. My predecessor Steve Sheffrin and his wife
Anjali established the Sheffrin Lectures in Public Policy with a generous
gift to the college in 2008. Steve and Anjali are here for tonight’s
lecture, with their daughter Meera, or she may be in traffic. And I’d like to ask them to stand,
please, so we can thank them with our warm applause. Thank you so much. [APPLAUSE]. I’d also like to recognize our provost
Ralph Hexter, who’s here this evening, and thanks for coming, Ralph. [APPLAUSE]. There’s also several deans in
the audience besides myself, but I think I won’t get the list right and
I’ll leave somebody out, so hello, deans. Thank you for coming.>>[LAUGH]
>>The Sheffrins endowed this lecture series because they wanted
to give a gift that would benefit the entire Division of Social Sciences. And this is very much in keeping with
Steve’s commitment to excellence for every department and program in
the Division of Social Sciences. He was dean for ten years, the longest
serving Dean of Social Sciences. And I don’t what I, six years now and
I don’t know how you did it.>>[LAUGH]
>>Second, it reflects the Sheffrins’ own
longstanding interest in public policy. Steve’s an internationally known
macroeconomist and expert in tax policy. Anjali received her PhD in
economics from UC Davis in 1981 and served in the utility and
energy sector for more than 25 years. The Sheffrin Lecture endowment supports
an annual lecture on topics related to the social sciences and public policy that
have broad relevance to our students, our faculty and
the wider university community. Over the past four years, the Sheffrin
Lecture fund has brought distinguished scholars from across the social science
disciplines to UC Davis to share their work on health care reform,
government secrecy, immigration and
polarization in American politics. Each of these talks has informed our
thinking on the day’s most relevant issues of national public policy. Tonight, Professor Sendhil Mullainathan,
he told me I couldn’t pronounce it wrong, actually, no matter what I did. I appreciate that, thank you. A Harvard economist and MacArthur Fellow, will deliver a lecture on the psychology
of scarcity, which is a poignant topic as our country continues to recover from
the worst economic crisis in generations. I’d like to point out the updated
Sheffrin Lecture plaque, which hangs in the Social Sciences Dean’s office and
bears a record of our lecturers. So we have added Sendhil’s name
to this distinguished list, so his name will have
a permanent home in UC Davis. It’s right outside my office. It’s a privilege of being dean.>>[LAUGH]
>>I would also like to thank the generous co-sponsors of tonight’s event, which
include the Institute for Social Sciences, the Herbert A Young Society and
the UC Davis Center for Poverty Research. Now here to introduce
Professor Mullainathan is Ann Stevens, who in addition to her appointment as
Professor and Chair of the Department of Economics, is the Director of
the Center for Poverty Research. The Center was founded in 2010
as one of three national, federally funded poverty research centers, along with one at Stanford and
the University of Wisconsin, Madison. The center’s core mission is
to facilitate nonpartisan research on poverty in the United States. They do this, in part,
by promoting active exchange between, between researchers across
the social science disciplines. This collaborative approach
is allows us to study one of today’s most
pressing social problems. It’s very well aligned with
the purposes of the Sheffrin Lectures. Now it’s my pleasure to welcome Professor
Stevens, who will introduce our speaker. Ann. [APPLAUSE]
>>Thanks very much, Ron, and thank you all for coming. It’s really a pleasure
to be able to introduce Professor Sendhil Mullainathan tonight. As Dean Mangun mentioned he’s Professor
of Economics at Harvard University and has been a leading scholar in
the field of behavioral economics. In this framework, he’s explored
issues ranging from cigarette taxes, CEO pay to poverty. He’s also a co-founder of the Poverty
Action Lab at MIT, which promotes the use of randomized trials in order to make
progress in development economics. As you see from the slide, most recently
he’s published with a co-author Eldar Shafir, a psychologist, this book,
Scarcity, Why Having Too Little Means So Much, which looks at how
scarcity of money or time or other resources affects our
decision making and our focus. Another minor point from Sendhil’s bio
is that I learned that in his spare time he enjoys repairing
classic espresso machines. I have had to very
carefully all day reveal conceal this fact from my colleagues
in economics because our machine, as you all know, has been on the fritz for
some time, and I was afraid I would find him pressed into service, but
he has survived without having to do that. Beyond espresso machine repair,
Sendhil has, of course, been frequently recognized in and
outside of academia. He’s been the recipient of
a prestigious MacArthur Award, has been named as a top 100 thinker
by Foreign Policy Magazine. He’s also been listed by Wired Magazine
as one of 50 people who will change the world, which is a very
notable accomplishment, but even more notable when I
investigated a little and found that he was named to this position
specifically by Daniel Kahneman, Nobel Laureate and
pioneer in behavioral economics. So truly impressive. I think in economics,
as Steve Sheffrin’s former colleagues and with many friends in the department,
we feel an especially high bar in selecting and nominating a
Sheffrin lecturer, and I am very confident that tonight’s speaker will exceed, will
lead will meet that bar and exceed it. And so please join me in
welcoming Professor Mullainathan. [APPLAUSE]>>All right, can you guys hear me? Is this mic on? Perfect. All right. Well, thank you all for having me. It’s a, it’s a real thrill to be here. I’m going to I’m gonna start by talking
about a, [COUGH] a personal problem. Don’t worry,
this isn’t gonna get uncomfortable. I it happened about four or
five years ago. I had I found myself in
a sort of a bad situation. I ha,
I was just like grossly over committed. You know, I’d be,
running late to meetings. Sometimes I’d miss a meeting. Somehow other things got there. My car wasn’t registered anymore, so as I
was driving to work, I would always have to find a path on which there would
be no Cambridge police officer. I even, and sometimes you’d see
an officer, and you’re like, I gotta make a right all of a sudden.>>[LAUGH]
>>Like, I can imagine like, I basically, I couldn’t even imagine what
my mom’s face looked like. I hadn’t called her for
like weeks, months. Just over committed. And that was no way to be, so
I had sort of made a decision. And the decision was,
I’m gonna get it all under control. How am I gonna get it all under control? I knew it wouldn’t be easy. The first step I was gonna take, was I was gonna start by
saying no to everything new. That’s important, right? It’s like, you’ve got all this stuff
coming on, but first, just no. And then afterwards, eventually,
with no new things coming in, the mountain of stuff in my life
would start to kind of get smaller. And eventually, maybe in six months,
I would be down to zero. And then I would be more
judicious in what I said yes to. So it was a good plan. It felt really good. Of course,
overconfidence always feels good. And [COUGH]. So I decided to implement the plan. And now, and I told Eldar all about it. And I don’t know if he gave a shit,
but he listened. About a week later,
I told Eldar, I called Eldar and said, hey Eldar really good news. A friend of ours is writing, is putting
together this very interesting book on poverty, and maybe we should
put a chapter in that book. Eldar, apparently, as you might see
there’s some inconsistency in that. Eldar also saw it,
apparently I didn’t see it. There was no irony in my voice and
you can see that my plan failed. But, in a funny way, it sort of succeeded. I mean, you know, you have to
have some amount of confidence. It succeeded because of something that was in chapter that we did in fact end
up writing despite being committed and that chapter would involve the poor and
how the poor managed their lives. And so, in there, we were, sort of, trying to synthesize qualitative stories
about time money management by the poor. And you know, one of the things
that comes up often is this. These are pay day loans. I don’t know if you guys
know what a pay day, does everyone here know
what a pay day loan is? A pay day loan is a, is a loan that,
you can get a loan against your salary. Might last for
about a week or two weeks so that when your next paycheck
comes in you can pay it off. And it might be $200 in size and
you might end up paying $25, $50 in fees. So, as you can see, that’s a very high,
effective interest rate for a two week loan. This is a very common industry. I think there probably more pay day
loan companies in the United States. More pay day loan locations
in the US than Starbucks and McDonald’s locations combined. So there’s a lot of them and
in there, when you hear, read about payday lenders you know,
he, here’s a common story. So, you’ll read about somebody, or
you’ll meet somebody who will be taking a payday loan in order to
pay off their last payday loan. Plus the interest, and that was
used to pay off the one before, and they’ll be paying off payday
loan from six cycles before. It’s not just that, they might have two,
three of these now. And their whole life is
under a mountain of debt. And you read this person, and you’ll see
what they’re doing, and you’ll see, like, oh, they’re doing all this and
they’re stuck in this debt trap. And what do they do, they go out and
they’ll, like, buy, like, a leather jacket or something. And you’ll be like come on,
that’s just ridiculous. At that point, that ridiculousness actually quite
paralleled my ridiculousness. After all, you could argue that, that person is money poor,
but what was I but time poor? You could argue that person
was deeply in money debt. What was I, but deeply in time debt? What is all the commitments we have? Those things we said yes to, but
the incurring of a time debt. And much like I couldn’t get
myself out of my time debt, this person couldn’t get themselves
out of their money debt. So there’s kind of a, a similarity here
between the money poor and the time poor. And there are actually
quite a few similarities. For example, people might say to
the money poor, given what you owe, how could you buy that? You could just as easily say to the time
poor, given everything you have to do, why are you playing Angry Birds?>>[LAUGH]
>>There’s something else, too, which is when you’re poor, the most
basic of goods can become luxuries. Your kid’s doing very well in school, their birthday’s coming up,
you wanna buy them a really nice gift. But, now that purchase
of a gift is a luxury. You’re very busy,
you have a deadline coming up, you’d like to take some time off and
spend with your kids. Now that also is a luxury. The poverty in this sense,
transforms the choices. So in some sense, this is the beginning of
this, what I’m going to tell you today. That, and this analogy between
the money poor and the time poor, is not just a superficial analogy, but there is something connecting these two
things, that there’s a notion of scarcity. That feeling of having too little, and
that this feeling of having too little actually changes the way you think and
the way your mind operates. And that if we wanna understand
why I was stuck in a time trap, if we wanna understand why the poor
might be stuck in a debt trap. If we wanna understand the behavior of
people across these forms of scarcity. We don’t need to look at
the individual person and, and ascribe anything to them, the,
maybe they’re all connected by understanding the psychology of how
we change when we have too little. That’s what I’m going to try and
assert to you today, okay, and that’s gonna be my assertion. And so, to help you understand what
the psychology of scarcity is or the science of scarcity if you
might want to call it that. I want to go to something
totally totally different I want to go back to World War II. So, this is around 1943. And in 1943, the Allies were reconquering
large parts of Europe, in 1944. So, at that point,
they were discovering starving people and they wanted to figure out,
well, what do we do about this? Now, they had all the food, so
the Allies were in a very good position. We had a ton of food, so
feeding these people is not the problem. The problem was, how should we feed them? If you’re someone who’s been starving, at the edge of starvation, do we just
give them as much food as they want? Maybe their system will go into shock. Do we instead, maybe give them a little
bit and keep increasing what we give them? That was the question they had. So they went to researchers at
the time and they said, hey, what do we do about this? And the researchers said, we have no
idea but let us run an experiment. See somethings haven’t really changed.>>[LAUGH]
>>And so this was the University of Minnesota and
the Minnesota study started. And, that study recruited
a large amount of men. And, they got a lot of
people to volunteer. They took about 30 of them, 20 something. And they said, okay, here’s the study. So what do they do? So how do you figure out how
to refeed starving people? Well, the first step is, you have to take healthy people and
you have to starve them. So here’s a subject in the study and
there he is early on. He’s actually not even fully into
the starvation period and some of you may, you can just see from the picture,
this guy’s got a long way to go. I don’t know if you guys can see why. I’ll tell you why in a second. So a lot of, forget re-feeding. A lot of what we know about hunger we
learned from this study, actually. They kept copious notes. Detailed notes about people. And, [COUGH] so for example,
some of it is obvious. I’ll tell you some things, like, it turns out that if you
starve people they get thinner. They lose weight. Some of it is not obvious. And that’s actually how you know this
is only part way through the study. If you keep starving them,
they actually gain weight again. Actually goes down and then back up. And that’s edema.
So you see his stomach would start to
swell up with water retention and he hasn’t started that process yet. Some of it is psychological stuff that,
you know is kind of obvious, too. It turns out that if you starve people, they get very cranky and
angry and upset and not happy. No surprise there. But there are some non-obvious things. On the physical end, I think for me what was striking,
was how severe the loss in muscle was. For example, the men could no
longer shampoo their hair. Because they couldn’t, their traps and
their triceps had deteriorated so much, they couldn’t lift their
hands above their heads. A little graphic. Perhaps most interesting, for
the purpose that I’m gonna tell you today, is the mindset. So how can we see,
the mindset of these men changed, not just that they didn’t just
get cranky and angry and so on. That’s obvious. But something more fundamental happened. So let me, let me give you a few facts
that might give you a sense of it. So the first is that what did
these men do with their free time? They would leaf through cookbooks. Now when your hungry, it’s not such
a good idea, but that’s what they did. Here’s another thing. When they surveyed the men and said,
hey when you leave this study, what are you going to do? Over, I think a half of, over half of
them, maybe over two-thirds of them, said I’m gonna start a restaurant. Now, I don’t want to ruin the study for
you, in case you’re gonna read the study,
but, so spoiler alert. But none of them started a restaurant.>>[LAUGH]
>>Perhaps most indicative, there was a time when the, one of
the researchers related this anecdote. All these men went to watch a movie. It was Friday night. This is in Minnesota, small town Minnesota
so, all the men sat in one corner, that corner over there. The rest of the town people sat over here. They were watching this movie. It’s a movie from the, the early 40s so it was like a romantic comedy
in the classic, you know. These were all great movies. And so there was, you know, it was funny. Whenever there’s a punchline, everybody
would laugh, the men would laugh. One researcher noted, every once in while
there would be a punchline and everyone else would be laughing, but that corner
of the theater would be dead silent. Researchers thought, that’s really weird. What is it about these jokes that
these men just don’t like them and that everybody else obviously likes them. And eventually, he pieced it together. Whenever there was food on the screen,
the men didn’t even hear the punchline. All of this just goes to show something
kind of interesting about hunger and about scarcity more generally. But what does it do when we
lack something that we need? Our mind automatically orients towards it. In fact, that’s even the wrong phrasing. The mind orienting towards it suggests
some sort of top down, me looking at it. It’s not that. It captures us, food. Let me give you an example of how
powerful this concept is by using a totally different study. This is a study from 60 years later, and
it’s a very different kind of study. It’s not 30 men and
qualitative observations. It’s a study that’s done by psychologists. And so here’s what they did. They brought people into the lab and they said before you show
up to this experiment, we don’t want you to drink anything. Show up thirsty for like, you haven’t
drunk anything for six hours, right. People showed up, and half of them,
they gave them water. The interesting thing about
psychology that I really like, I feel like I’m doing a lot
of psychology these days. Perhaps I’m doing it because there’s
something a little practical jokish about many good psychology experiments, and
the other half they gave them pretzels.>>[LAUGH]
>>And so now you have some very thirsty people,
and you have some very not thirsty people. Well, what did they do? What they did was,
they said to these people, great. We’d like you to do a very simple task. On the screen letters are gonna flash. And you are simply going to tell us
whether those letters are a word or not. So word, not a word. It’s a pretty simple task,
even my undergraduates could do this task.>>[LAUGH]
>>So, so they’d probably cheat on
it just because they could.>>[LAUGH]
>>Just out of habit I suppose.>>[LAUGH]
>>By the way this, this part of the study
always makes me thirsty. I’m not joking.>>[LAUGH]
>>Well, why do this task? Obviously, everybody gets this right. Well, this task as simple as it is,
is called lexical decision task. And I think of it as one of the most
beautiful discoveries of psychology because it’s one of the best ways we have
of looking inside somebody’s brain and actually seeing what they’re thinking. Why is that? Because even those these words, everyone
knows their words, the speed with which you recognize them to be words is
indicative of what you’re thinking about. So, if we did this so
we do these with the thirsty for example. And you find the thirsty are no slower or
faster to find the word chair. But they’re much quicker to
see that W-A-T-E-R is a word. When I say much quicker,
I mean about 75 milliseconds. 75 milliseconds is really, really fast. It’s so fast that we know
it’s below conscious control. So it’s not that people
are choosing to respond. They couldn’t choose at that speed. It’s that their mind is on water,
because they’re thirsty. So now you see these two
polar opposite extremes. By the way, whenever I do this, I tell
you, the first time I made these slides, this slide I’ve never changed it
because I made it for a talk in Norway. And as you can imagine,
[LAUGH] when it first went up, I remember thinking to myself,
wait a minute. By some blind chance,
is it possible that I have just.>>[LAUGH].>>I, I still don’t know,
I mean Norwegians are very polite, so.>>[LAUGH]
>>Who knows. I think I must have been shopping at IKEA,
but nevertheless. Between these two studies, that’s going to be the core of
what I’m going to tell you today. The psychology of scarcity is trivial,
I mean really trivial. Now when you don’t have
something that you need, the mind automatically is
captured by that thing. When you’re hungry, there’s a part
of you that says, hey, we’re hungry. I don’t know if you got
that last message I sent or the last eight text messages I sent you,
but we’re hungry. It keeps calling out to you
that your mind automatically, you see the food immediately,
everything that you lack. And these are physical processes. But that this is true of everything,
that the poor, for example, are automatically captured by
saying how will I make rent this month. You’re sitting here quietly,
you may not have money needs. If you were poor, part of your
mind would keep going to, my God, how will I make rent this month? Not because that’s what you
wanna be thinking about. That’s not an exciting topic. But that is what your mind goes to. If you’re busy and
you have a deadline on a paper tomorrow, your mind may keep going to, be called by,
oh my God, I have to make this deadline, I have to make this deadline. That’s it,
that’s the psychology of scarcity. It’s fairly simple, and that’s what I’m gonna build
the science of scarcity around. And so I remember telling a colleague
of mine that I’m working on, sort of, this science of scarcity. He listened. He said, oh that’s very interesting. He said, you know,
there’s already a science of scarcity. You might have heard of it. It’s called economics.>>[LAUGH]
>>Now, oddly enough, I had heard of it. It is a field I knew something about,
and, so towards understanding how what I’m telling you is, is actually
quite different from economics. To think the power of economics
really does rely on scarcity. It’s the recognition that
physical scarcity is everywhere. If we build a bridge, that is that
much less money to do something else. If we spend so much to save somebody’s
life suffering from a particular disease, that is less money to
spend on something else. It’s not a particularly pleasant message. Unfortunately, it’s a true message,
that there are trade-offs, that physical scarcity is ubiquitous. So, how’s that differ from what
I’m going to tell you today? Well, let me tell you too, with a story. This is this is one of Doug’s
favorite cocktails, so I decided to put that up there. This is a cocktail. So imagine you went out to,
to have dinner with a friend. The waiter,
waitress comes to you and says, hey, before dinner would you like a cocktail? We have this special cocktail on the menu. You look into it and you’re, and
you’re thinking, huh, should I buy that? Just think for a minute about
everything that would come to mind. What are all things that you would
think about when buying that? What, name some stuff, all right?>>Can I afford it?>>Can I afford it? Yep, what else?>>What am I gonna eat?>>What am I gonna eat? Will this go well with my blank? How many calories, what?>>[INAUDIBLE] [LAUGH]
>>Oh there we go, look at that. Well, that’s very interesting. What does it cost? That’s related to how I afford it. Will I be driving home? Am I gonna be drinking alone? I mean, sure, that was fun in the morning,
but maybe now- [CROSSTALK]>>[LAUGH]>>Those are all the kind of questions you might be asking yourself.>>[LAUGH]
>>There’s one question, however, that you don’t ask yourself, which actually is funny because a poor
person does ask themselves this question. In fact, in our data when we ask
the poor questions such as this, they spontaneously asked this question and
rich people don’t. To understand what this question is
Pretend now that you’re on a diet and some of you may be on a diet. Now, what question would you ask? You might ask,
how many calories does it have? There’s another question you might ask. If I have this drink,
what will I not have? Now it’s funny, you don’t ask yourself, if
I buy this cocktail what will I not buy? When you’re well off that even
feels like a ridiculous question. What do you meant what will I not buy? I have money in my bank account,
I can buy anything I want. Actually, economics tells you correctly,
of course, you can’t. There is a physical trade off. I hate to break it to you but
$10 spent somewhere, will mean ten less dollars elsewhere but
it doesn’t feel like that and that’s the difference between the psychology of
scarcity and the economics of scarcity. In economics,
scarcity is correctly ubiquitous. It’s an accounting identity, $10 less on
this cocktail or $10 less elsewhere but the psychology of
scarcity is not that way. You can feel abundance. For example, you go for a jog,
you lose $20, you don’t say oh, my God, what will I not,
what can I not buy anymore? You get annoyed at yourself for losing $20
but when you’re experiencing scarcity, when you’re that dieter,
you suddenly feel that trade off. You suddenly feel that constraint and
that’s what I want you guys to understand. That that psychology of scarcity is
what I’m gonna be talking about today. The feeling, the sense,
that now I have too little and as a consequence, the constant bringing
to mind of the thing that you lack. It’s a very simple statement and
I won’t talk, I’ve given you some
evidence on the thirsty. I’ve given you some
evidence on the hungry. You can show this for the poor. You can show, for example, if you have the poor simply complete
the following word, C-A-blank-blank. What word finishes that? What you’ll find is that the poor are much
more likely to complete that as cash rather than cars. There’s source,
a set of studies much like this, you can show in fact the poor are often
thinking about money related things. You take that as given. So let’s ask what does this get us? Such an obvious hypothesis. Okay. So the first thing I want you to
talk about is to go back to time and I want to just observe something. I want you to think a little bit about how you yourself are when you have both
abundance of time and scarcity of time. So imagine you have two months
to write a chapter of some book. How do you work two months
from that deadline? Sit down, you say, okay, I’m gonna write,
then you say, but before I write maybe, I should check some email. I mean, why not? But anyways, since you’re already
checking email, what about ESPN? I mean,
you just have to know what happened. Before you know it, it’s lunch time. You now you go for lunch,
you linger on you know, with a friend,
when are you gonna see this friend again? So you decide to have dessert and coffee
and now it’s 2:00 in the afternoon and you see where the day goes. Now, when it’s a week before the chapter
is due, you’re completely focused. You’re on target. You don’t even think about checking email. Or if you do, you say, forget this,
I’ve got something to do. Angry Bird doesn’t even
enter your field of vision. You might skip that lunch. Or you might go to that lunch and
come back on time. Why is that? Well, there is a huge benefit
to having a part of your brain constantly call you up and
say, let’s focus on this. We need to get this done. We need this. There is a huge benefit to scarcity. I started by talking about the downside
but let’s first just remember, there is a huge upside and this is why
studies find, for example, that people, when work on deadlines,
they are just much more productive. You know, I don’t need to tell you
this study, you know it and, in fact, at the end of every deadline, you always
think to yourself the same thing. Why can’t I be this
productive all the time? That’s the psychology of scarcity. In fact, this shows up everywhere. Let me tell you about Connie Gersick. Connie Gersick is a is a organizational
behavior researcher and I know most of you think to yourself gosh,
I go to so few meetings. I’d love to go to more meetings. How can I have a job where
I go to more meetings? That’s Connie Gersick’s job. She studies meetings. Exciting that she has
studied a lot of meetings. Meetings by CEOs, meetings by students,
meetings of every stripe and variety and length and across all these meetings,
she’s found an interesting pattern. The pattern is the following,
every meeting, whatever the goal, whoever the people,
all starts off the same. They start off with one
person saying something and the other person saying oh, very good
point, let me say something related, and saying something completely unrelated,
and this goes on for quite sometime. [LAUGH] Until, at some point, and
it always happens at the same point. She calls it the midpoint transition. Halfway through the meeting,
people look up and go, oh shit, and then they get serious. People focus on the task, people
are no longer saying these arbitrary, different, that’s
the psychology of scarcity. It focuses us because it’s not the kind
of focus that we can decide to focus. It captures our attention. There’s a benefit to having
your attention be captured. Okay. So that’s all by way of saying there
is a huge benefit in focusing. That the pressing task or
need is there and that’s what we see. Angry Birds falls out here. The temptation to go and
do some random thing falls over there. We only see that we’ve got
to get this deadline done. This shows up in money. I’ll give you an example. We did a survey,
where we went to south, South Station, which is a train station in Boston and
we said to people, hey, when you get into the cab
what does the meter start at? That’s an interesting question. When we asked everybody,
there were poor people, rich people. It’s funny because the poor don’t take
cabs very often but despite that, they’re the ones that knew the answer to
this question because they’re focused. They’re focused on price. They’re focused on money. They know what’s going on. In fact,
this is something you can do for fun. You go to a supermarket that’s got sort
of a heterogeneous income population, wait outside, and
when people are coming outside say, hey, can I do a little survey? And well, hopefully they treat
you better than they treat me. They say yes to you. [LAUGH] And then,
take their receipt from them. By the way, if you actually try this and
something bad happens to you, I’m not responsible.>>[LAUGH]
>>So take their receipt from them. Marketing researchers do this. So take their receipt from them and say
okay, I’ve got a few questions for you. You just bought Crest toothpaste. How much was it? If this is a relatively high income
person, they’ll say, I think it was $2. Could have been five maybe seven. Look, I’m pretty sure it was single
digits, so put me down for single digits, if that’s an option.>>[LAUGH]
>>Ask a poor person, they’ll say oh, it’s $2.79. It’s on sale. It’s normally $2.89 or $3.50. The poor know the price of things. You can even ask people how
much did you just spend? Rich people will say, 70 bucks, 90? Maybe 100. Somewhere in that range, 70 to 150. Kinda, I think. This isn’t a Whole Foods, is it? Anyway.
[LAUGH] That’s true, right? Isn’t that crazy? Anyway, I don’t know. I’m angry at Whole Foods. So ask the same thing of a poor person,
they’ll know exactly what they spent. This is so, and
I just want to reinforce it. This is the benefit of the psychology
of scarcity, it focuses us. It’s so extreme, for example, that’s another thing
you can do in the supermarket. Go to the supermarket, walk through
the aisles, I assume you guys have all been to like, a Costco or you know,
where they sell things in huge sizes. You know, that’s the essence of America,
big is good and so like you can go and
find toilet paper and see how much the same roll of toilet
paper sells when it’s 12 versus 48. And see if you buy the 48, you buy
it because you’ll pay less per roll. That’s called a quantity discount. So next time you’re in the supermarket,
just go through with all the items, the tuna, the toilet paper,
the rice, whatever. And just track how much did it cost for
the smaller and the big size, and how big was the quantity discount? You’ll find something interesting. I mean, this is economics. It’s interesting as it gets, no,
this is actually interesting. About 20% of the time, you’ll find
that there’s no quantity discount. There’s a quantity surcharge. It’s a trick. It’s a trick supermarkets have. Because, why, you just assume
there’s a quantity discount, so you just go right in and
take the big rolls of toilet paper. You’d actually be better off buying
four small rolls of toilet paper. What’s interesting about this is that
marketing researchers have tried to predict not just how big
the discount will be but where? Where will we see these discounts? Guess what turned out to
be a great predictor? The income of the neighborhood. Supermarkets in poor neighborhoods
never have quantity surcharges. The poor just don’t fall for that stuff. This is the reminder I’d like to put to
you is that the psychology of scarcity begins with something fundamentally good,
fundamentally helpful. And if you want to think
about it this way, think about it from an evolutionary
biology perspective. You have an animal and
the animal is hungry, or thirsty, what would you do if you were
designing the brain of this animal? You would like a part of the brain
that constantly says to the animal I’m sure what you’re doing right now you
think is important, but we’re hungry. Let’s focus on that. Hungry.
Do you remember that? And that’s really what I
want you to think about. That’s the essence and
the origin of the psychology of scarcity. So then the question really is, if it’s
all so good how do we end up borrowing? How do we end up with these traps? Why do we end up in this bad situation? How does the psychology of
scarcity create something so bad? One way to think about
it is the following. Remember I told you you were so
focused on these pre, pressing needs? So you were so focused on the urgent? And wasn’t it great that like Angry Birds
was like outside your vision? You know what else is outside your vision? That mole on the back that
needs to be checked out. That’s not urgent, but
guess what, it’s important. That car registration sticker that needs
to be fixed, that’s not urgent either. I mean, it could wait one more day. The very force that provides
the benefits of scarcity also shows us where it goes wrong. Because everything gets punted aside. The important gets punted aside. In fact, Stephen Covey wha,
has this wonderful book. Because I have tenure I can
admit I love this book. It’s called The 7 Habits
of Highly Effective People.>>[LAUGH]
>>It is a great book. I suppose it might be
enough to revoke tenure. But you know people are snobs. I’m going with it. This is a great book. One of his things that he points
out is that many ineffective people neglect the important in
favor of the earthly. That’s the essence of being busy. And that’s the essence of
poorly managing your time. But notice how it follows
directly from focusing. You could almost say you’re not
just focusing, you’re tunneling. And when you tunnel,
everything falls outside that tunnel. Let’s do this with money. You’re poor, and you’re so
focused on making ends meet today. You’re good,
you know the price of Crest toothpaste. You’re good, you know that you know,
buying two rolls of toilet paper is cheaper than buying four
rolls of toilet paper. You are doing a great job
making ends meet today. What goes wrong? Well, rent is very hard to make, meet. You’re not focused on
making next month’s rent. That doesn’t make any sense,
that’s even philosophical. What does that mean? You’re focused on making
this month’s rent. So if somebody comes to you and says, it’s really hard to make
ends meet today, I have an idea. Here’s something that will help you today
and solve the problem you’re working on. The cost of it, well,
you gotta pay it back, but that’s not what you’re focused on. A loan is almost like a perfectly designed
product to exploit this weakness. I’m not saying it was designed that way,
but it has that feature. Its benefits appear in the tunnel. Its costs appear outside the tunnel. When you talk to borrowers
who are taking payday loans, it’s very tempting to think
that they are foolish. They’re actually not very foolish. When you ask them questions such as
how much does this payday loan cost? They’ll know this is
the cheaper payday loan model. That’s right in here. If you ask them how will
you repay this loan? They look at you like you’re an idiot. Because in a funny way,
you are being an idiot. It would be as if you were working very
hard on making a conference deadline for tomorrow, and your RA comes and says, hey this paper that’s not due
tomorrow, I have some questions on it. And you’re like, are you an idiot? Have you not heard,
we have this deadline tomorrow? That’s what this person is thinking. I am trying to save my home,
I’m trying to make sure I make rent and you’re asking me how will I,
what are you talking about? I’m fighting a fire and
you’re asking me about next months dinner. That’s the essence of how I think the
psychology of scarcity leads to borrowing. So what I want to tell you is how
would I test this hypothesis? See, what I’m arguing is I’m arguing that
borrowing inherently follows scarcity. So how are we going to test this? I know it seems quite obvious. And we will so
I will in fact do the obvious thing and use Family Feud to test this. I don’t even think I need to explain why. The connection is really clear. You guys don’t know what Family Feud is? Do you?
Some of you don’t? Some of you don’t. Oh, you’re missing out. I think this is one of the seven
greatest American inventions. [LAUGH]
>>It real, It’s really very good. No, it’s really good. Family feud is basically a quiz show. It solves the fundamental
problem of all quiz shows. Which is, if we’re honest with ourselves,
it’s really weirdos who like quiz shows. I mean, who knows that capitol to that
random country is, I mean whatever. Do you read the Almanac for
breakfast, I mean what are you doing, how do you know all this stuff? How do you create a quiz show for
people like me, and most Americans, who just don’t know that much? What you do is,
you come up with a question, and you say, we’re gonna ask the same
question to 100 randomly selected people. We’re gonna take their answers, and
your goal is to guess their answers. There’s no truth,
it’s democracy applied to knowledge. [LAUGH]
>>Right? In a way, it’s very postmodern. I feel like it’s well ahead of its time.>>[LAUGH]
>>For example, this is a question
from Family Feud. Name something Barbie could sell
if she needed to raise money fast. Oh, come on, don’t you guys wanna guess?>>[LAUGH]
>>Come on, what would you guess?>>[LAUGH]
>>Go ahead, let’s see how good, let’s play the Feud. What car? Yes! Look at that. Number one answer is in, fact, her car. What are the other, come on.>>Ken?
>>[LAUGH]>>Oh my goodness. That is the number three answer. Look at that. That is right. That is right. You’re not married to her, are you? Oh wow.>>Not anymore
>>[LAUGH]>>So, and number two is the shoes. So what does all this
have to do with scarcity? We took a bunch of undergraduates and
we had them play Family Feud. And the way they played Family Feud
is they’d get a bunch of Family Feud questions. And you know answering these
questions takes some time and thinking about answers takes time. So they were given a certain
amount of time for each question. But [COUGH] what we wanted to do
is we wanted to study scarcity. So what did we do? Well, we gave half of them more time,
half of them very little time. So now we have the Family Feud rich,
and the Family Feud poor. Of course, these are not rich people and
poor people, they’re just undergraduates who were
randomly assigned to being rich and poor. It’s not even rich in money,
it’s rich in Family Feud seconds. Then what do we do? Well, we gave some of them
the ability to borrow. We wanted to see,
what does borrowing mean? You can have one more
second in this round, but you lose two seconds from the future,
a 100% interest rate. We’ve really blown the payday
loan industry out of the water, because a 100% for 40 seconds? Oh, now I know you’re thinking these
seconds aren’t worth anything, but you also thought that about Bitcoin,
I really feel like this is a way out.>>[LAUGH]
>>Yeah. So what did we find. What we found was that,
first of all, these rich people and poor people with seconds do exactly
what the poor do with money. When given the ability to borrow,
here’s what happens. I’m color blind, so whatever, the bottom
line’s blue and the top is what, green?>>Yellow.>>Yellow? Okay, yellow. So, the yellow are the rich. The blue are the poor. And this is a percentage of each round
that goes to paying off previous debts. And you can see they’re just
driving themselves into debt. In fact, by round 12, 65% of their income
is going to paying off their prior debts. They look just like poor people or
busy people. And even better,
let’s look at how they perform. What you find in the next graph is
a little clunky, but work with me. What you find is, this is the rich. This is performance of the rich who
are given the ability to borrow. They do slightly better than
the rich who [INAUDIBLE]. This is performance of the poor. When given the ability to borrow,
suddenly they do much worse. Much like people [INAUDIBLE]. Why?
The loan is exactly exploiting them. Now, it’s not about time. We’ve done this with Angry Birds and
giving people more or less shots and the ability to borrow shots, and all of
a sudden you’ll borrow too many shots. Scarcity inherently generates borrowing. So if we go back to the original story,
now we can have Family Feud, and we can also say there’s a reason
why I get stuck in a time trap. There’s a reason why the poor
get stuck in a debt trap. It’s because that very force
of scarcity that makes me so productive also blinds me to
the consequences of debt. Debt, every form of debt,
putting off a project, taking a loan, saying I’ll do this later,
all of those things are exactly the things that are toxic
to the psychology of scarcity. Now, if that’s all it was, that the psychology of scarcity gives us
some immediate benefits, but it has some long term consequences because we borrow I
think that would be an interesting story. But I think that’s an incomplete story. And to understand why it’s incomplete, let
me talk about poverty for a little bit. I wanna tell you a few facts about
poverty that are quite troubling, that, and, you couldn’t make many such facts. So I’ll just tell you a few. The first comes from the world of health. So, this is diabetes medication. I think I probably have a 100%
chance of getting diabetes because I’m South Indian, male, and
everyone in my family has it. So maybe 90%, 95% chance. Which is funny because I think most
in the US think of diabetes as like, a disease that comes from behavior and
being overweight. It’s gotta be genetic component as well,
this is Type II Diabetes. Why am I telling you this? Because diabetes is kind of
a really horrible disease. It doesn’t just kill. It kills in a terrible way because what’s
happening is the blood sugar which is too high in your system
is deteriorating your body. So you go blind, your limbs get
gangrene and have to be chopped off. It’s very unattractive,
very, very not good. Luckily, drugs like this
amongst the first kinds of, besides sort of drugs that
deal with infections, deal with staph infections, I guess
that would be the first wonder drug. This is sort of the next wonder drugs. They really changed diabetes. Took it from this horrible disease
to a completely manageable disease. These glycogen management drugs,
you just take them at a regular interval. They’ve gotten so good now you don’t
even need to take these big injections. I mean, they’re really good. You can,
diabetes is a very manageable disease. Unfortunately, what we’re finding
is these drugs aren’t working. For example in the, woah,
that’s pretty good. For example, in the US we’ve,
we probably lose about 100,000 limbs every year due to diabetes. I mean, lose, that’s a euphemism for
saying we have to chop them off. Why is that? Why is that happening? Well it’s happening, like I said,
because the drugs aren’t working. And why aren’t the drugs working? Now, I know it’s pretty late in the day
for getting very technical, but you have to brush up on
your biology at this point. These drugs are not working, it’s getting,
this is gonna get very technical. These drugs are not working because if,
it turns out that for drugs to work people have to take them. And people aren’t taking them. It’s not that they’re not taking
them saying that I don’t want them. They’re following the prescription,
theyre taking them 68% of the time. 68% of the time means, you know,
68% of the effectiveness for diabetes which means limb loss
which means lots of consequences. There’s nothing special about diabetes. For every disease that we know of,
drug adherence is a problem. Here’s a list of tables. So here’s diabetes,
67.5 across a bunch of studies. These numbers vary from context. Here’s HIV. You remember when HIV was
this horribly deadly disease? We found these antiretrovirals,
we thought these were miracle drugs. Well now we have this problem,
their adherence is only about 88%. Now, there’s a misleading
aspect to this table. See, diabetes is a pretty
linear production function, by which I mean that you take 65, 8%,
roughly that’s 68% effectiveness. HIV unfortunately not,
88% does not mean 88% efficacy. It means far less efficaciousness. So, that’s one reason HIV is
proving to be a big problem. But it’s true everywhere, I mean, end stage renal disease
is one I find quite striking. [COUGH] a common example is you’ve been
waiting for, you’ve been waiting for a kidney transplant. And you get the kidney transplant and once you get it you have
to take immunosuppressants. And guess what, people don’t
take the immunosuppressant and some kidneys are lost. It’s such an extreme problem that one
of the screens you use to give somebody a kidney is an assessment of
whether they will take their drugs. Guess what turns out to be an extremely
good predictor of whether someone will take their drugs. Across countries. It’s true within the US. It’s true within India. It’s true anywhere you look. Income. The poor are the least
likely to take their drugs. Now, before you think this
is kind of an obvious thing. You might be saying oh, newsflash, drugs cost money, big surprise that
the poor don’t spend on something. Actually it is a surprise,
cuz you pay a co-pay for your drugs,
on Medicaid there’s zero co-pay for drugs. So in fact the poor face a lower price,
in fact no price, and it’s still the case that
there’s a big effect. Why? This has nothing to do with
borrowing it’s just taking a pill. We can go to another place. Let’s go to parenting. There’s a lot of really interesting
work done by sociologists and qualitative researchers and some, and some psychologists on what it
takes to be a good parent. And we actually know quite a bit, at least
correlationally and in some cases causally about, you know, the things that
go along with being a good parent. For example,
you should engage more with your children. Talk to them, spend time with them,
look at them. You should read to them. You should, for example,
be consistent with them. Don’t say one thing today and
then the opposite thing the next day. Almost like good advice for being, what you want to do with
your grad students as well so.>>[LAUGH]
>>I guess it applies to everyone. And they find this out through a variety
of means but they also have found shockingly across context a pretty good
predictor of what makes a good parent. Guess what it is? That’s right, our old friend income. The poor are just worse parents,
study the after study. Let’s try another behavior. How about this? [COUGH] Agricultural economics,
or agronomists, agronomists, study the production function of
what it takes to make areas and, and farmland more productive. And they’ve discovered this
unbelievable technology. It’s actually quite amazing. It turns out to really increase
crop yields by a lot, 50%? It’s called weeding. You go out, and we’ve known this for
thousands of years. Now, [COUGH] I used to do field work
a lot in India, you can do this, and you can see this whenever
you do field work. In a country where the plots
of people are side-by-side. Not like in parts of Africa where like,
you know, the plots are all segregated. You, you know side-by-side,
you just walk down the field and you’ll see some plots are very tidy,
well-kept. It’s like,
it’s like your colleague’s office. Some plots need a lot of weeding. But despite these huge returns,
some people don’t weed. It’s like taking your drugs, being
a good parent, some people don’t weed. Guess what turned out to be a great
predictor of whether you weed or not? Income. The poorest farmers. The ones who can least afford not to
weed are the ones who don’t weed. I could play this game with you all day. Here’s the playbook. Find a behavior from some field. I mean look, we talked about parenting,
education, health, whatever it is. Wanting the behavior that you think is
good, people won’t do it enough, and guess who won’t do enough of it, the poor. Well to just say that the poor
borrow is a little too small. There is a deeper connection between
poverty and behavior of all kinds. Why? Why is there this connection? I think the reason we never talk
about this, I’m pretty sure. And this is striking how widespread
this is even though we don’t really talk about it. It’s this pretty clear if I haven’t
given the first part of this talk and this was all I was saying, you would
already have decided that I am some right-wing nut who is about to tell
you the poor have deviant val. I may still be a right-wing nut so
don’t [LAUGH] you may like, they’re dumb, they have limited ability,
they’re incompetent. Look, great, thank you for the evidence,
this is exactly what we [INAUDIBLE]. If you’re honest, these individual
differences would explain this behavior. Heck, you could go further. You could say hey, maybe this is
the reason why the poor are poor. As people, they’re myopic,
they’re, they do dumb things. Big surprise, they’re poor. Let’s put that on the positive. The other response to this relationship
has been to say it’s not about people. Look the poor don’t have education. Maybe, maybe some of
the stuff requires education. Maybe it has to do with
the circumstances where they live, maybe it has to do with high prices. Sure high prices and you have to do
with drugs but maybe for parenting, it’s the high opportunity. You know what, different explanations. Different explanations for
all of these behaviors. Stop lumping them together. It’s all very complicated. And poverty is related to behavior
because the poor live in complex different environments. So these are the two candidates,
individual differences and environment. I think I find both of these unsatisfying. Environment explanation I
find deeply unsatisfying. Not that there aren’t environment, surely
the poor live in different environments. Surely they have opportunities. But, when we see such a consistent
relationship across all these behaviors, are we really saying there isn’t
some deeper explanation for why the poor behave worse
on every dimension? And we’re really gonna use
a different explanation each time? This feels unsettling. The first one feels unsettling, I suppose I shouldn’t say from
a scientific point of view. But, from a scientific point of view I’d
say it’s unsettling because, I mean, to be poor or have a poor farm in India,
is very different in a country that’s very stratified and there’s very
little upward chance of mobility, how would you even
explain why in that case. And it’s just, it’s hard to explain
why individual differences should be in this type of, in countries. It shows up everywhere, not just countries
where there’s great opportunity. If you believe such countries exist. What I wanna tell you is that the scarcity
mindset, that I told you before, can explain why this is happening. That’s what I’m gonna end by doing is to
say besides the benefits of scarcity. Besides the scarcity that leads us to
borrow, that at some deeper level, that same force that scarcely captures
our attention can explain why it is for the poor why we see such worse behavior. Now to understand, I wanna tell you about
a little experiment that’s more fun than all this heavy, weighty stuff. And then we’ll get back to the heavy,
weighty stuff. In this experiment where we
had people do a word search. So, have to find the word street, I know you won’t listen to me until I show
you where it is, so there it is, okay? Then the word search cleared and then
they had to find the next word, tree, and it cleared and they had to find the next
word, picture, and on and on and on. Half the subjects did that much. The other half we replaced
the word street, cake. Replace the word picture with donut. You see where this is going,
yeah, a lotta tasty words. What we were really interested in this is
everybody searched for the word cloud, for example, both conditions. But some people before they look for
a cloud, look for the word picture, and other people look for the word donut. We wanted to see how quickly did people
find the word cloud, if they searched for the word picture, versus if they
just searched for the word donut. It turns out that for a big fraction
of our sample, not much of an effect. Just as quick to find the word cloud,
whether or not you search for picture. But for about 40% of our sample
it made a big difference. Can you guess who? No? Dieters. See the non-dieters no effect,
dieters, oh. If they had just searched for the donut,
they were very slow to find the cloud. It’s as if they were still
thinking about the donut. This isn’t even a real donut. This was the letters D-O-N-U-T. What’s going on here? It’s kind of intuitive
what’s going on here. Scarcity captures attention. That means whatever you’re trying to do,
this process in your mind is saying, hey donut? Donut? Which kinda makes it hard for you to
focus on the task that you’re focused on. Imagine someone next to you who kept
tapping you on the shoulder and said hey, rent is due in a month. Do we have money for rent? That would get pretty annoying,
but also pretty distracting and also quite hard to focus. In fact, I want you to imagine
sitting down to a computer and trying to use it and you try and
surf the web and it’s going really slow. It is just painfully slow. You know, like, who bought this computer? This is a slow comp,
this is a terrible computer. Somebody should throw this away. This processor is just terrible. And you realize five minutes into
this dreadful experience, well wait, I see what happened. There’s a process in the background
that’s downloading a big file and we just stop that. All of a sudden,
the computer’s fast again. The problem is not the computer or the bandwidth that it adds
to access the internet. The problem was something else
was clogging up that bandwidth. The mind is not that different,
you’ve got a certain amount of bandwidth. And, if something else is
clogging up that bandwidth. For example, consistently thinking
about how to make ends meet. Of course you will have less bandwidth for
the task that you’re focusing on. Much like these people, who the minute
they thought a little bit about donut, they had less bandwidth to look for
the word cloud. What I wanna tell you is in fact,
scarcity does in some way, and poverty does in some way,
make you dumber. It’s not that poor people are dumb,
they have the same bandwidth, it’s the same computer, but
that the condition of poverty. By constantly tugging at our minds,
makes you dumb. Not just dumber. I wanna say that there’s
a resource called bandwidth. I’m not gonna go into this
in too much length, but that this resource underlies everything. You wanna think clearly? The best way you can think about
bandwidth is to consider yourself tired. You think less clearly. You have less self-control. You learn less well. You have less memory. You’re less creative. That’s bandwidth. Tiredness is like a good
simulator if you will. Wanna understand behaviors? Well, when your bandwidth is taxed,
you snap at your kids. When your bandwidth is taxed, you forget
to do some small tasks, you look an idiot. You got to take your drugs, you eat less healthy,
you choose badly, you loaf around. There are a lot of behaviors
that follow that bandwidth. So I’m going to make a bold assertion. I’m going to say that by itself,
directly poverty taxes family. How am I going to do that? I’m gonna tell you there are two sort
of core psychological components of bandwidth. The first is what I’m gonna
call executive function. Executive function is
that capacity we have to restrict the immediate impulse we have. That immediate impulse to do something or
say something. Fluid intelligence is the other component,
the ability to think, reason clearly. And I won’t get into details
of how we measure it, we’re running out of time but
take these as two measures. And then,
I’m going to go to a mall in New Jersey. This is a mall in New Jersey. Quaker Bridge Mall. An exciting mall,
if you haven’t been there. In fact yeah,
I would encourage you all to go. And it’s not like every other
mall you’ve been to, trust me. So in this mall, we said to people,
we want you to take two tests. The first test,
is this test of executive function, the other is this test
of fluid intelligence. These are very standard tests that
psychologists use to measure. For example, this is Raven’s Matrices,
that’s how you would measure IQ, one component of IQ. We just have a, people take these tests. Some people are poor some people are rich. That by itself won’t tell us much because
poor, rich so many other things differ. Do we even measure income, who knows? What we need to do is we need to do the
equivalent of the word search study that we got people thinking about donuts. We need to get people to think
a little bit about money. So for half the subjects before they
took this test we said to them hey, here’s John. John needs $2,000 cuz his car broke down. How would he get it? It’s not even your money, it’s fictional. It’s about John, but it got them
thinking a little bit about money. Just like the words D-O-N-U-T. And here’s what happened. There’s some difference in
intelligence in this simple example, small between poor and rich. If we don’t get them to think about money. But simply get them to think
a little bit about money and all of the sudden,
huge differences in intelligence. Here’s, here’s fluid
here’s executive function. Impulse control. Actually here you see a bigger difference,
before we do anything. But get them to think about money? And you see a huge difference. And what this tells you is getting the
poor to think a little bit about money, has a pretty big effect, and
I’m gonna tell you this number is big. I mean like very big. But, I will tell you how big in a second. It has a pretty big effect. But that’s not perfect because after all
what I have tried to tell you is that being poor taxes your bandwidth. I didn’t tell you being poor taxes your
bandwidth when some weird researcher gives you a question about John. Now, how would I test that hypothesis? By the way I should tell you,
even when we did this study, we’ve done this study like 15 times. Even when we did the study and
gave people very strong incentives to get all these questions right,
you find at least as big of an effect. Which is ironic cuz the poor
need the money more. So what did we do? Well let me tell you about
a different study we did. Back in India, now notice this whole
different populations, when I say poor, I mean poor in the very fluid sense. It’s now we’re talking about
poor farmers in India. And these are sugar cane farmers. Sugar cane is a very interesting crop. The way sugar cane works is it,
it lasts for about a year. And you harvest it at the end of the year. Now, one thing, other thing I
should tell you is that because of the way it’s planted, the harvest date
is very different for different people. My crop could be harvested in June and Doug’s crop could be
harvested in September. But while he’s still waiting around for
his harvest, I’ve done my harvest. And we’re right next to each other. Why is this interesting? Well, it’s interesting because when I was
a Harvard grad student, Harvard had this policy of giving their stipends to
their grad students once a semester. What that meant was I got my
entire stipend in September, and had to last till February or January. Well, you can imagine what happened. December was a very tough month. A very, in fact, April at the other
end was another very cruel month, to use TS Elliot’s words. Why?
Because the cash from before run out. Things were very dire at this end. This was a bad idea. A terrible policy. Now these sugar cane farmers
are on the Harvard plan. They get paid once a year
when their harvest comes in. As you can imagine,
the month before harvest, they are poor. The month after harvest,
they are well off. Now you don’t need anybody to go and
prime and get them to think about money. I get the same person when they’re
poor and when they’re rich. Now other things may be different,
maybe they’re working different hours. Trust me when I tell you things like
hours worked are not different, we control for that. That nutritional inputs are not different. The main thing for these farmers is it
they’re rich one or well off in one month and poor in the next month and
because two farmers next to each other, can be pre and post harvest, I’m not just
telling you it’s about harvest month. There isn’t a harvest month. You can take out the entire month in fact. So now we can go and redo our study. We can get it, exactly test them on IQ and
executive function. And guess what?
You find exactly the same thing. Pre pre-harvest, getting far fewer Raven’s
items right rather than post-harvest. Pre-harvest are much slower on
this executive quotient test, make many more errors. So this is not a slide that’s
telling you to wake up. Don’t worry, If you’re sleeping
by now I’m happy and I’m okay. I’ve been putting this slide up because
I told you these effects were big, so let me tell you how big they are? Remember I also told you that
the best part of psychology is it’s like a practical joke? So there’s a part of psychology
that is sleep psychology, and they study the effects of sleep and
how people sleep, and sleep well. Well, a bunch of experiments
are interested in the effects of sleep on cognitive function. They bring people into a lab and say oh, welcome to the lab, you guys,
there’s a very nice comfortable bed. It’s quiet here. The climate is perfect, you can set
it to what you like, sleep away. You guys, welcome to the lab tonight,
you’ll be getting no sleep at all. In fact, just to make sure,
I have graduate students here. They’re gonna sit right next to you. And if it looks like you’re
even gonna close your eyes, they’re gonna shake you awake. Next morning, 9 a.m.,
you’re very well rested. You guys on the other hand,
not so well rested. You pulled an all-nighter. And if there’s anything I learned
in my undergraduate years, like I think this is the only thing anyone
learned from any undergraduate program,>>[LAUGH]>>It’s that after an all-nighter, you’re an idiot. That essay you wrote that you
thought was just brilliant at 4 am, and you realized later it
was brilliant gibberish. So now they do cognitive function
tests and what do they find? They find in fact that the IQ of
this population is dropped a lot. The executive function of this
population has dropped a lot. These effects are so big for example,
that if you’re gonna be on the road with a drunk driver or a sleepy driver,
pick the drunk driver. It’s not a joke. Pick the drunk driver, you’ll be safer. Why am I telling you all this? Well, that gives us
an interesting calibration. It helps us understand how big
the effects, But I just showed you are. It turns out the effects of poverty
are anywhere between two thirds and 80% of this effect. Every day. It’s as if the poor are pulling
an all nighter every day. These are not small effects. Poverty taxes bandwidth dramatically, because this one force that I told you
about, that constantly calls to mind. Now why does this happen to the poor? I started talking about scarcity, but
why doesn’t this happen for the busy? And in a way it does. You’ve all experienced this. You’re on deadline, you go home and
your kid is talking to you and you’re like who is this kid? Where does this kid show up from? Why are they annoying me? You snap at them. You say things you shouldn’t. But it only only gets so bad for you. You know why? Because at some point,
you realize it’s bandwidth tax. And you start uttering words
like life-work-balance. You start taking on fewer projects. Might take a vacation. The poor also realize this. Unfortunately, they can’t utter
words like life poverty balance. I just feel like I’m focusing
too much on this poverty stuff.>>[LAUGH]
>>Take a, take a little vacation from this. Maybe take a few weeks and
be rich for awhile. Then I’ll go back to the poor thing. Man, I’m committed to this poor thing,
just need a little break from it. So you can see why the underlying
forces of scarcity are the same. The way it can play itself out in
the world can be very different. I’ll give you an example, take diets. You’ve all had the experience
of a diet being too taxing. What do you do?
You give up. Take being lonely. The lonely,
experiencing a form of social scarcity, have the exact same forces
that we talked about. They’re in a social interaction. They can’t help but
think about does this person like me. That’s quite a big distortion. Guess what? They can’t just say,
I’m gonna stop being lonely for a while. In fact, the lonely show pretty
big bandwidth taxes as well. So while the forms of
scarcity are similar and the forces they evoke are similar,
the consequences can be quite different. So let me just conclude
with a few policy lessons. The first lesson is one for
all of you about time. This is a lesson that happened
to me about three years ago. I went to dinner with a bunch of friends. It’s a great dinner, was really good. The food was good. The conversation was scintillating. It was great.
I’m not kidding, it was really good. And then, I thought to myself afterwards,
what happened? I mean, it’s the same old friend. They haven’t gotten more interesting. If anything, they got less interesting. I’m sure they the same thing about me. The restaurant wasn’t a new restaurant. It was like a [INAUDIBLE]
I wonder what happened? And then I thought about what happened. Now at three in the afternoon I dropped
my cell phone in the toilet, so at that dinner I didn’t
have my cell phone with me. Now it’s not as if I would have been
checking my cell phone during dinner. But you know what I would have done,
if someone went back to, you know when I was waiting for my friends
to show up, maybe on the cab ride there? I would have checked my cell phone,
there would have been an email there, that said oh, this thing we’re stuck on,
and we don’t know if we’ll meet, make our deadline, or maybe this project
is short on money, blah blah blah. What, what am I doing with this cellphone? What I’m doing with the cellphone is I’m
conducting that own lab experiment on me. I am priming myself with all those things
that are exactly going to distract me during the dinner, that are going to
get me thinking about the stuff that I shouldn’t be thinking about. I am putting D-O-N-U-T in front
of my face, when I don’t want to. Why are we doing this? We’re doing this because we’re very good
when we’re busy at trying to manage time. But we’re not so
good at managing bandwidth. This is a bandwidth management mistake. We think of ourselves
as being short on time, when we really ought to think of
ourselves as being short on bandwidth. And bandwidth doesn’t behave like time. For example, squeeze in five minutes
to check your email between, you know, meetings. You’ve might have just
made a bandwidth mistake. Because now that e-mail is
going to keep haunting you for the rest of the next meeting. The same is true of poverty. When we think of the poor,
what do we think? We think they are short on money. I would argue that we should think
that they are short on bandwidth. My first policy lesson is
just going to be very simple. It’s going to be to say for the poor, we really have to
focus on managing bandwidth. What’s an example of that? Let me give you an example. This is a FAFSA form. Some of you are all too
familiar with this FAFSA form. This is an interesting program, FAFSA. It’s intended to give financial
aid to low income individuals. Imagine I said to you, yeah,
the FAFSA form, it’s gonna cost $2,000. Would’ve been like, are you an idiot? This is a form aimed at
low income individuals. What part of do you not understand? Low income, means low income,
so don’t charge them a lot. Oh, got it, got it, got it. The form was 40 pages. Yeah, fine, whatever. You’re taxing people on bandwidth. You have no worry taxing
people on bandwidth. You should be as worried if not
more worried because the poor are not just short on money. They’re short on bandwidth. Asking them to do things that are going
to be very cognitively taxing is very expensive. Conditional cash transfers
where we say to people, oh you need to follow these
conditions in order to get the cash. I’m not saying they’re not good programs. Surely they are good programs. But each condition you add
is another bandwidth tax. And the language of economics,
just like money taxes are regressive, and disproportionately target the poor, these result, these results suggest
bandwidth taxes are regressive. In fact things are so bad, as economists,
what annoys us most is when there’s a resource that’s not being accounted for
in calculations. No cost benefit calculation I know of,
of policies, accounts for bandwidth taxes. That’s crazy. Okay, let me tell you about another thing. This is the B B 17. It’s a Flying Fortress. This is World War II. I’m not, I don’t have any
fetish about World War II. I just have two examples. Don’t think I’m British.>>[LAUGH]
>>The B-17 had this like funny problem during World War II. Pilots would be landing this plane. It’s not funny, haha funny. The pilots would be landing this plane and as it was hitting the ground,
they would retract the landing gear. This is what is known in
aviation as a bad idea. Because now the plane
crashes into the ground. Sometimes the pilot survives. Oftentimes the pilot survives. The plane is gone. In the middle of war,
we just lost a bomber. The [COUGH], the military was not happy. They sent in Lieutenant Chapanis
to investigate. What was going on in,
inside these pilot’s heads? There was a presumption that probably
they knew what was going on. Excellent airmen can make no errors. And so odds are we made some mistake
in training or selecting people. But maybe let’s be honest with them,
so Chapanis went in, he talk to the sele, the,
the pilots that were alive. He tried to understand what was going on. And, his first clue that
there was something wrong, was that this didn’t happen
with the cargo planes ever. This was only happening with the bombers. And Chapanis had an incite,
in fact a brilliant incite. He said I’m going to stop looking in,
he was a psychologist, I’m going to stop looking
inside people’s heads. I’m going to look inside the cockpit. And what he found inside
the cockpit was fascinating. This is not exactly it, but it’s close. What he found was the lever for
retracting the landing gear looked like, this roughly, make sure it’s like this. And there was a lever right next to it,
just like it. Operated the same way. And that was a lever for
lowering the flaps. When you land, you should lower the flaps. You should pull this. Do not pull this. What a great cockpit design.>>[LAUGH]
>>Pull this, do not pull that. Not the best design. In fact, you should all be grateful for
Chapanis. Chapanis’s incite here led to an entire
field called human factors engineering. It’s changed how we design cockpits. I have a bunch of ideas,
but they’re basic ideas. Stupid, of course,
excellent airmen commit errors. The best trained pilot will commit errors. It will just happen. It is the job of the cockpit to
minimize the chance of error. It is the job of the cockpit so that when errors do happen they
don’t have big consequences. It is the job of the cockpit when errors
do happen to have alarms to tell you, hey are you sure you wanna do this? Most aviation experts believe about
90% of the reduction in air craft, crashes since the 50s,
90% is due to better cockpit design. The reduction of human error. Not because the wings
have gotten more safe, it’s just because we’ve
gotten rid of these. Why am I telling you all this? Well, it’s this simple insight,
excellent airmen do commit errors and it’s the job of cockpits
to be fault tolerant. Works for airplanes,
why don’t we have this for policy? If the poor are bandwidth taxed of
course they will make mistakes. Of course errors will happen. So shouldn’t policy and
a goal of policy to be fault tolerant? I don’t mean about incentives versus,
you know, motivating people. Sure motivate people all you want, but the truth is the best motivated
person is gonna commit an error. There is no more motivated agent than
a pilot sitting in that cockpit. It’s not like the pilot was thinking, hey, what’s the worst that could happen
if I retract this landing gear?>>[LAUGH]
>>I mean maybe if they gave me a little pay per performance key but,
but they didn’t. No. Perfectly motivated. But errors will happen,
our pov, our policy towards poverty is remarkably fault intolerant and
we could be fault tolerant. What’s an example. You sign up for a community college,
you sign up to take a class. The bandwidth tax being what it is,
you miss a few classes. What just happened? You can’t go back, after you miss
a few classes you’re just behind. Every new class gets harder and harder. The very nature of classroom
instruction at a community college is designed to be fault intolerant. It need not be. If we’re starting ten calculus classes,
why not stagger them? So that if you miss a class well
you just step back to the class, just class two which is
still where you are? There are many ways we
could be fault tolerant, if our goal was to recognize
people will just make mistakes. People will just miss parts
of a training program. This will just happen. I’m a, let me end on a positive note and
then I’ll stop. I’ve been pretty negative
here with the bandwidth tax. But I actually want to be very positive. Take an example. One of the biggest bandwidth taxes of low
income individuals is finding daycare. Now picture we had a program
that provided daycare. What would we do to
assess its effectiveness? We would say that it increased
labor supply of the mothers. Yeah, okay,
we might find some honest effects. I would say we might be
missing the biggest effect. That daycare program might be creating
six IQ points for all we know. It might be making better parents. It might be making better drug adherence. It might be doing all sorts of
stuff that we have no idea about. A financial product that simply
moved harvest income from the end of the year and smoothed it out. Again, if you just look at the finances
of the program you’ll say, oh, it did something. That might be making farmers weed better,
it might be doing all sorts of stuff. Do you think, because we don’t think
of bandwidth as a resource, and we don’t think about managing it, we
don’t realize that some policies can have disproportionate impact far
beyond where we’re looking. A daycare program could
be a health program that gets people to take their drugs and
come in for exams. We would never think of it that way. But through bandwidth,
that could be happening. So that’s all by way of saying,
some of our programs might be having more far reaching effects
than we’re even looking for. Cuz, before this talk would you
have ever said, hey, let’s see, let’s measure the impact of this on IQ. But maybe we ought to start to. All right, thank you. [APPLAUSE] [APPLAUSE]>>If there’re any questions, I could take a few questions. I, I think you have to go to the mic. I think you, I think.>>Yes.
>>Yes? Okay good, yeah.>>Please use the microphone. [INAUDIBLE]
India?>>I, I think it is.>>Okay, so
let me back to a poor farmer in India. Trying to [INAUDIBLE]
trying to come [INAUDIBLE] You give the farmer a lot of money. You take that farmer and you move him to a place where the amount of money he normally makes [INAUDIBLE]
>>That’s a great question. I think one of the things that I’ve
skirted completely in this talk is, what does scarcity mean? Is it absolute? Is it relative? And it’s a psychological concept,
so it’s hard to know. And if I were to give my gut answer, what
I would say is it truly is a bit of both. By which I mean it is obviously painful
to not be able to feed your kids or to feed yourself, and
that’s a sort of a very primitive pain. And someone living in Trenton, New Jersey
doesn’t have to suffer that need. On the other hand, it’s pretty
painful also to say to your kid, I know you’ve done really well in class,
and I know you’re doing well, but no birthday gift for you. Pretty painful too. And so if you imagine there there’s
sort of a hierarchy of sort of desires. I’m pretty sure the effects of
scarcity will bite the most, more at these low levels
of absolute poverty because there are very primitive
desires that will call attention. But human beings are social animals,
and so not being able to do things for your kids,
feeling poor relative to your neighbors. Those things will have you know,
it’s not the same force, have some force. And so my guess is that what, if we,
this stuff goes out, we’d find these effects are pretty big in Trenton,
which is what we found in our mall study. But yes, I think your intuition is
right that they’ll probably hit with a little more force, or
more force in India, and perhaps with even greater force in parts of Africa,
where there’s even greater poverty.>>[SOUND] What is the name>>Well, so, I think the Harvard study is what comes closest to,
to, for me to guess, yes. That is, that, now I wanna be careful. That doesn’t mean giving money is the
solution, see there’s a parable here is, the psychology of scarcity has a problem
but so does the psychology of abundance. It’s not like giving me all
this time to do this chapter miraculously solved my problem, because during the abundance period
I was making a set of other mistakes. Which is kind of what set it up. And I’m sure we would find that. It’s like we do find that
during a period of abundance, the farmer’s not putting aside enough,
but we all do that. So in a weird way, if I were to
think of what’s the ideal social, I’m not gonna propose social engineering. But the ideal social engineering
that challenges scarcity is how to make sure we have the right
amount of it in the right time and place. Enough scarcity to motivate us to
do the right thing, but not so much scarcity as to create a bandwidth
tax or cause us to be prolific borrowers. Any other questions?>>Cuz towards the end of
your topic how you may find Yeah, so I think that, I don’t know that
I would think about priming people to abundance, but I would say one
thing which is once we understand the mechanism of scarcity If you,
if you believe what I’ve told you, which is that there are these
intrusive thoughts. Maybe the most wild conjecture I
would make is, there is a literature, a growing literature in psychology that
has to do with intrusive thoughts. And that actually shows perhaps
interventions that can help people manage intrusive thoughts was not designed for
the poor, it was actually designed for people with eating disorders or just be, try to teach people how
to live better lives. It’s cognitive behavioral therapy,
mindfulness. These are all interventions designed for how to teach people how to keep intrusive
thoughts from affecting everyday life. And these interventions
are interesting because they kind of tell us we’re bad at it. For example, if you have an intrusive
thought, somebody keeps calling at you, what do you tend to do? You tend to push it away,
which is actually the worst thing to do. And so one thing I might guess that might
make a difference, this is what I would hazard a guess, is that it’s
possible that mindfulness training, at least I would like to see
if mindfulness training, can reduce the bandwidth tax
amongst low income individuals. That would be something interesting if
someone were to try as an experiment. Because if that’s the mechanism, I could
imagine seeing that playing some role. And as the gameification in me, I don’t quite know how to, I mean,
Family Feud was a game but outside of. But I do think that it’s possible that,
especially in the implementation in some of these interventions you
could play a pretty big role. Any other questions?>>When you’re talking about having
deadlines [INAUDIBLE] have a deadline [INAUDIBLE] and you get very focused
on [INAUDIBLE] How does what you’re talking about as a psychologist
[INAUDIBLE] that would>>Procrastination. So these are obviously
ways people procrastinate. Is there a way for that, that focus to
kind of set in when you know that you could write, you know,
>>Yeah>>10 pages in 2 hours if you get that, to that point, but right now maybe it’ll
take you an hour to write a paragraph. So, but you wait for that to kick in and
that’s where all the procrastinations, [INAUDIBLE] have this abundance of time. Because you are really productive but
you can’t constantly be that productive [INAUDIBLE] how
do procrastination fit into this?>>Yeah it’s a great question. I think procrastination,
especially when we have abundance, I think this is exactly where we just have
to remember the dual roles of scarcity. It, scarcity really does help us.>>And so, we don’t want to
just say abundance is great. That’s like the worst outcome, too. And I think that, as a time management
issue, what’s challenging is to figure out how do you ensure that you have the right
amount of scarcity for the task. See what I mean? So it’s like, here’s an example. Like, in writing the chapter, I had a very
tight deadline from the very beginning. I would end up with a crappy chapter. Like, a certain types of cognitive
tasks need lack of pressure, like some people call this fanning out. You kind of need to be creative and
opening up. But at some point you’ve
fanned out enough, and what you really need to do is fan in and
put the stuff on paper. So it’s almost like if you’re
thinking about that task, what you would like is abundance early and
then scarcity later. There other tasks where you just
need scarcity all the time. You’re having a meeting with oh,
I don’t know, graduate students. You just need to say,
all right 20 minutes, get to your point. 20 minutes, get to your point. Of course when you have a meeting with
the graduate student very early and they just need time to explore that. So I think part of the challenge
of time management is figuring out how to
ensure enough scarcity. That you are productive but
not so much that you’re not. I think that is, at least in my own time,
that’s what I’ve kind of, that’s what I said bandwidth management,
it’s largely about that. I had to understand that each task
has its own bandwidth demand. [INAUDIBLE]
Thank you. [APPLAUSE]

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