I once heard Sendhil Mullainathan speak at an event in DC, and he was smart and engaging. He's a MacArthur Foundation genius, a Harvard economist, and a TED speaker. He has a wry sense of humor and tells anecdotes from his personal life to make his economics work come alive. And all of that is in this book, written with his long-time collaborator, Eldar Shafir, who's a Princeton psychologist.
Still this book was a bit of a disappointment, possibly because I expected so much. A lot of the conclusions are, well, obvious. The book's entire thesis can be summarized as: "People make bad decisions when they are resource-constrained, whether the resources in question are money, time, food, or something else." Some of it recaps what has been said before about hyperbolic discounting in economics.
The book's chapters go like this...
Intro - definition of "scarcity" and overview of its consequences
Chap. 1 - The good: scarcity can cause focus. The bad: focus can mean inattention to other things.
Chap. 2 - Scarcity causes an internal disruption that makes it harder to make good decisions.
Chap. 3 - Slack (the opposite of scarcity) allows better choices and reduces the bad consequences of failiure.
Chap. 4 - Poor people are sometimes more realistic about estimating costs, because they have to be.
Chap. 5 - Borrowing when you're short of cash leads to a descending spiral of debt.
Chap. 6 & 7 - Poverty is a vicious circle of scarcity leading to bad decisions leading to scarcity...
Chap. 8 - Poverty can be alleviated by creating slack, such as extra cash or day care to create more time.
Chap. 9 - Efficient use of resources and division of labor helps organizations become more efficient.
Chap. 10 - Efficient use of self-control helps with life issues.
On the positive side, the book contains some interesting stories, and a rich set of endnotes to track down the many studies the authors cite. On the negative side, the book keeps talking about how mainstream economics is traditionally (for example, that people are "rational" decision makers), just so the authors can tear down the mainstream view. Economists come across as completely clueless, which maybe they are. Is it really surprising that when you're poor, hungry, and stressed, that you would make less than rational decisions?
Mullainathan and Shafir seem aware of this problem with the book. Chap. 2 contains some defensive passages about how bad decisions under scarcity are different from bad decisions due to stress. The explanation isn't compelling, and unlike most of their other claims, that passage doesn't have lots of studies to back it up.
The most interesting study in the book is one about street vendors in India who are in perpetual debt from a loan-sell-repay cycle (Chap. 6). The researchers give the vendors a cash grant to pay off their debts, which should have allowed them to start saving a little and eventually eliminate the need for borrowing altogether. One by one, though, the vendors fall back into debt. Any non-economist would see this as challenges of personality or habit. It's the same reason why couch potatos find it hard to get off the couch and exercise everyday. The authors, though, somehow turn this into a story of scarcity. How it was because there wasn't enough slack. Why don't they do an experiment where they give everyone a little extra cash to save? They don't, though, and I'd bet good money that with additional cash, the vendors would still have fallen back into debt eventually. What the vendors need is some training and hand-holding.
This study illustrates one of the biggest problems with the book. In order to make a case for the centrality of scarcity, the authors go too far. Not every bad decision is about scarcity. Sometimes, people are dumb, and sometimes there are dumb people. And sometimes, people are smart, and there are also smart people. At one point, the authors write, "all people, if they were poor, would have less effective bandwidth." Not sure about that. My grandmother managed seven kids and ran a shop, but she was dirt poor until her children grew up.