Mullainathan is the co-author of ‘Scarcity’.
By Raif Karerat
WASHINGTON, DC: Sendhil Mullainathan, a behavioral economist at Harvard, and Eldar Shafir, a Princeton psychologist, are the co-authors of “Scarcity,” a book that demonstrates how a lack of resources can create a distinct psychology for anyone who is struggling to get by with less than they need.
The basic notion that is explored more thoroughly in the “Scarcity” is that when we feel we don’t have enough of something– be it money, time, affection, or anything else — it acts as a detriment to our cognitive abilities and can more specifically affects our ability to make sound decisions.
Mullainathan and Shafir’s research indicated both wealthy and poor people are affected by the psychology of scarcity, but the underlying difference is that poorer individuals face it more often and have less of a margin for error when it comes to how they deal with it.
One study that is detailed in the book and featured in New York Magazine revolves around an IQ test, but all participants were first handed a prompt that included some questions:
Imagine you’ve got car trouble and repairs cost $300. Your auto insurance will cover half the cost. You need to decide whether to go ahead and get the car fixed, or take a chance and hope that it lasts for a while longer. How would you make this decision? Financially, would it be easy or hard?
According to New York Magazine, “rich” and “poor” participants — as defined by their self-reported income — did equally well on the IQ test. But then Mullainathan and Shafir bumped up the cost of the repair to $3,000. Poor participants’ performance immediately dipped 14 IQ points, or the equivalent of a slide from “superior” all the way to “average,” while the rich participants’ performance remained level. “Simply raising monetary concerns for the poor,” the authors explain in the paper, as quoted by Feinberg, “erodes cognitive performance even more than being seriously sleep deprived.”
This experiment underscores one of the most important principles of the duo’s research: day-to-day stressors — especially financial ones — affect the poor more than the rich. According to New York Magazine, in their view, people should stop treating poverty as a matter of personal failing, of poor values or morals.
UC Irvine took a progressive step on Thursday by opening a contest to the public that aims to link proposals for alleviating poverty-related issues with potential investors. Applicants have been invited to submit proposals for a design or technological solution that could help alleviate poverty and related issues, including starvation, disease, and homelessness.
The eventual winner of the “Designing Solutions for Poverty Competition” will receive an all-expenses paid weekend at a Newport Beach resort for six people.
“Anybody might have an insight or innovation in mind,” Professor Richard Matthews, director of UC Irvine’s Blum Center for Global Engagement, told the Orange County Register.