Book Summary: Scarcity

The summary is about Scarcity: Why having too little means too much, written by Sendhil Mullainathan and Eldar Shafir. It elaborates on Scarcity and how it affects our mind and decision making capacity.

Some of the basic things that were discussed were:

• The more scarce you are on something, it affects you in a major manner. It takes your focus off other things. This idea is captured by the phrase called Bandwidth Tax. It ruins your focus and makes you make more mistakes than ever before.
• They emphasise the point that scarcity captures the mind. But Scarcity also makes us do those things which we wouldn’t do otherwise.
• In the sales field, the most productive days of a salesman comes when he is approaching the deadline rather than at the beginning of it. And people tend to do more when they approach the deadline. But at the expense of pushing aside other important things.
• The focus that comes when we approach a deadline causes a negative effect called Tunneling. The act of neglecting other possibly more important things is called Tunneling. So everything has a trade-off in life.
• The best metrics for the scarcity can be measured between the rich and the poor. For the rich, they can afford to make purchases without the price factor in mind and the poor cannot. The poor need to weigh other factors before making a purchase.
• The rich can make a purchase and say ‘I regret that’ and the poor can make a purchase and say ‘I regret that, now how will I pay for x and y?’
• Also, the rich get more Slack while making purchases as there is room for error as they have the resources.
• This is perfectly captured by the example of how bees and wasps make their respective nests.
• The honeybee needs to source around 8 pounds of honey just to make one pound of wax. And it requires the body of heat of other bees to melt the wax and make it into perfect hexagons joining at 120 degrees and thickness less than 0.1mm. This construction is so perfect, that the thickness error is +/- 0.002 mm, which means less than 2% tolerance. The modern-day constructions allow a tolerance of under 10%
• Whereas, the Wasp makes its nest with mud and spider carcass for the larvae to grow. Now, mud is available in plenty. Hence there is no scarcity. They make their nests in an irregular manner and injudiciously.
• The idea that the authors captured was that the rich can afford to make mistakes because the scarcity of money is not capturing their mind. Hence room for error or more slack can be expected from their side. Whereas the poor need to work with what they have judiciously.
• We relatively make choices rather than absolute manner when it comes to money and many other things.
• Even our eyes sense darkness and brighter regions based on relative degree and not on their absolute value. Example a matchstick lit in a dark cave will be brighter than one lit up in the sunshine. Hence our eye is not a light meter, more like a relative light measurer.
• The German physician by the name of Ernst Weber is considered as one of the founders of experimental psychology.
• He experimented by blindfolding people and keeping equal weights on either hand and asked them to speak up when they will start noticing a change in weight when the weight has been added to one of them.
• He observed that they started to detect when 1/13 of the total weight is added. And this remained constant for all subjects.
• If you were holding a pound of weight (453 gm) in each hand, you’ll start to notice the difference only when you’ve added 1/13 of that 453 gm.
• And surprisingly if you’re holding thirty pounds on each hand, then you need at least a pound to detect the change. This concretes the fact that our whole behaviour on estimation is based on relative quantities and not absolute amounts.
• The bigger packets in supermarkets might make you assume that you’re saving more. But the cost per unit of the quantity might be more. This is established as ‘Quantity Surcharge’. The rich often fall into this trick, but those with poor income choose the smaller packets will not because they know about this, but because they are not willing to shell out more money.
• When you want to make a purchase and are not sure to decide how to go ahead with it, try to entangle them with other quantifiable things. Example: You want to buy an iPod but, if you save that money by not buying it, where would you spend it in a better manner?
• People tend to become better at economics when they are poor than when they are affluent. Even the famous economists who preach the theories of economics fail to apply them in real life as when it is a real-life setting the basic human behaviour takes over.
• Behavioural economics was born from the empirical observation that people violate several basic predictions of economics.
• We often postpone important things and work on the urgent things. But those important things will demand more time in the future. Thus we have a myopic sight in doing things.
• Thus the poor are more prone to take loans to pay off urgent needs without thinking about future implications.
• If you’re naturally good at doing something but then suddenly you need to prove that to someone else, you may not perform at the peak performance. And if you are less focused, you won’t perform well either. So the sweet spot is somewhere in between which is an inverted U curve.
• The lonely people find it hard to impress others because they become overly aware of themselves and desperate trying to impress the other person. This is one of the reasons why they stay lonely. Whereas the social person can do it easily because they have an abundance mindset.

Overall, I thought this book was going to be a hardcore economics one. But it surprised me in many ways as the authors presented the concepts using real-world experiments and justified that the theory preached in the world of Economics doesn’t play well in the real-world. There is a wide range of other factors that need to be taken into consideration and all those factors affect the outcome. Thus Behavioural Economics is the best economic science that can predict the real-world outcomes of a situation.

If you are looking to read a book and hoping to leave a lasting impression, then this is the one to go for. Of course, is it dry in some places, but the authors make sure to capture the reader’s attention quickly without wandering off. The lessons that you will learn in the book need to be taken into heart and will make you a better spender and saver for the years to come.