Scarcity affects intellectual performance of human beings so badly that it forces human brain to lose control over different cognitive abilities and self-confidence. People lose their natural balance of cognitive capacity under scarce situations that pressurize the conscious brain to think of handling the specific situation. Mullainathan and Shafir were able to prove that, when in scarcity, people usually lose control over their ability to pay attention, make good decisions, stick to the plan, and resist temptation (61). They regarded the issue as “Bandwidth”, and proved that bandwidth reduces during the period of scarcity by undertaking different tests on different people under hypothetic scarce situations (62). Finally, they found their ideal sample in India which helped them to conclude that bandwidth of people reduces when they are in scarce situation (62).
The effect of scarcity on my own bandwidth has made me realize the negative impact of scarcity on a person’s cognitive capacity. I have been experiencing financial scarcity just after the completion of college degree, and the conditions have forced me to fail in getting enrolled into a university to complete my Bachelor degree. But I had planned to complete my Bachelor degree, Master degree, and then to become a professor by completing a PhD. Unfortunately, all my plans were shattered with the sudden arrival of scarcity in my life. The scarcity condition was so bad that it compelled me to start working for money and to abandon my academic life. After a year of abandoning studies, I discovered the fact that I was thinking more on earning opportunities and others financial gains than thinking of educational achievement! And then I started preparing for the SAT test for enrolling for a bachelor course to start the academic life again. However, I was distinctively losing focus, and I had less self-confidence than ever before while preparing for SAT examination. My condition made me realize very clearly that financial scarcity has already reduced my bandwidth and affected my decision-making ability.
My own experiences are suggesting that scarcity forces students to deviate from their educational goals. My findings were supported by the research of Greever, who has also found that poverty or scarcity has an adverse effect on the performance of the students, their academic achievements, also on the mental health of students. Now that I have realized that I am losing my bandwidth due to scarcity, I have decided to alleviate the effect of scarcity by managing it. I will be following the solutions suggested by Mullainathan and Shafir in their article titled “Freeing up intelligence”, which suggests that, I should try to manage scarcity by using 401 (k) plan, exercising regularly, passing quality time with family, being health conscious, and managing a perfect daily routine (61).
Also, I am planning to undertake some of the activities that would help training my working memory. As it is suggested by Jaeggi and Buschkuehl, training working memory skills are very beneficial as they not only improve working memory integrity, but also increase attentional control, language related abilities, and scholastic achievement (19). It is proved that human beings are rational by birth, which logically implies that they take decisions that benefit them more than the underlying expense of enjoying the benefits. Economic decision rule suggests the similar – if an action offers higher marginal benefits than the marginal costs then that action should be exercised or the other way around. Nonetheless, it becomes very hard for people to take the optimal economic decision when it comes to managing scarcity. According to Backhouse and Medema, scarcity initiates the need for resource allocation and distribution problem, but it does not ensure that the individual’s choice would be rational when the individual takes decisions of scarce resource allocation (227-228).
It is often argued that scarcity makes an individual myopic, in other words scarcity makes an individual put higher value on the current liabilities than the long-term benefits and future opportunities. For insance, the research of Yang states that the poor display more varieties of adverse behaviors in real life, as compared to the rich; the poor are always involved in excessive borrowings and seldom make investment in education and savings. Although, it is well-known these behaviors are harmful, some people would rather give up the long-term benefit for the instant gratification (1298). The issue can be clearly explained by the following example. Mr. X is an individual who is currently earning a lower amount of money than he needs to pay-off all his liabilities. Being in this financial situation, he receives an offer to buy a house from a real estate company.
If he chooses to buy the property then it would add $1500 on his monthly bills, while, on the other hand, it would reduce his monthly rent of $700. Moreover, the property has four bedrooms, two of which can be shared or rented, which would bring additional $600 into his wallet. But in the scarce situation there is a greater probability that Mr. X would decline the offer of purchasing the house, as he would calculate that the action would add $800 to his monthly bill. His cognitive capacity would fail to take the renting option into calculation, and to consider that all the spending is actually not a spending but an investment into an asset. It will happen because scarcity would force him to miscalculate marginal benefit, marginal cost, and opportunity cost. And the miscalculation will eventually persuade him to take a suboptimal decision. Individuals tend to miscalculate the values of different things while experiencing severe scarcity. At the same time they intensify values of things that do not have as much importance as they perceive (Sehnert et al. 824-825, 831). Many researchers have concluded that scarcity reduces bandwidth or cognitive capacity, but Carvalho et al. found no significant impact on financial decision making of individuals under different scarce situations (261).
Works Cited
Backhouse, Roger E., and Steven G. Medema. “Retrospectives on the definition of economics.” The Journal of Economic Perspectives, vol. 23, no. 1, 2009, pp. 221-233.
Carvalho, Leandro S., et al. “Poverty and economic decision-making: Evidence from changes in financial resources at payday.” The American Economic Review, vol. 106, no.2, 2016, pp. 260-284.
Greever, Sadie. “Poverty in Education.” 2014. Web.
Jaeggi, Susanne M., and Martin Buschkuehl. “Working memory training and transfer: Theoretical and practical considerations.” New Frontiers of Multidisciplinary Research in STEAM-H (Science, Technology, Engineering, Agriculture, Mathematics, and Health), edited by Toni B., Springer International Publishing, 2014, pp. 19-43.
Mullainathan, Sendhil, and Eldar Shafir. “Freeing Up Intelligence.” Scientific American Mind, vol. 25, no.1, 2014, pp. 58-63.
Sehnert, Steen, et al. “Scarcity, Engagement, and Value.” Motivation and Emotion, vol. 38, no.6, 2014, pp. 823-831.
Yang, Shaoli. “Effect of Poverty on Intertemporal Choice and Psychological Explanations.” Psychology, vol. 7, 2016, pp. 1296 -1306.