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Choiceology: Season 4 Episode 2


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A lack of resources can constrain your ability to make the best choices in life. But surprisingly, there are advantages to scarcity in some contexts.

Think back to a situation where you’ve been really pressed for time. Chances are good that the pressure of a deadline or an appointment caused you to be (a) hyper-focused and efficient or (b) panicked and prone to errors.

Now think of a situation where you had plenty of available time. While you were probably much less stressed, it’s also likely that the superpowers of hyper-focus didn’t come so easily.

In this episode of Choiceology with Katy Milkman, we look at how not having enough time or money or other resources affects behavior and decision-making.

  • We begin the episode with Howard Scott Warshaw. Warshaw was a very successful game developer at Atari during the company’s heyday in the 1980s. He worked on several best-selling titles, including the hit game Yar’s Revenge. However, he is probably best known for creating E.T. the Extra Terrestrial video game. Some consider it the worst commercial video game ever released. The reason E.T. was so unsuccessful as a gaming experience and a commercial product may have more to do with Atari’s development timeline than with Warshaw’s concept or design.
  • Next, we test our hypothesis about resource scarcity with a simple bean-bag-toss game. Half of our players were given five bags to throw, while the other half were given only one. You may be surprised to find out which players were more accurate, on average, with their tosses.
  • Katy then jumps into the science of scarcity with Sendhil Mullainathan. Mullainathan explains that while scarcity taxes the mind and can lead to poor decision-making, it can also pay dividends with increased focus. Sendhil Mullainathan is the Roman Family University Professor of Computation and Behavioral Science at the University of Chicago Booth School of Business. He is also the author of Scarcity: Why Having Too Little Means So Much.
  • Anuj K. Shah is a colleague and research collaborator with Sendhil Mullainathan. He joins Katy to discuss simple strategies to help offset the mental load of scarcity. He is an associate professor of behavioral science at the University of Chicago Booth School of Business.

Choiceology is an original podcast from Charles Schwab.

If you enjoy the show, please leave a rating or review on Apple Podcasts.

Click to show the transcript

Timekeeper: One minute remaining.

Chef Michael: Go. Go, go, go.

Timekeeper: Chef Michael is cutting the mushroom ravioli into traditional pillow-bite shapes. He’s adding some turnip and sweet potato. This will be mixed with the cornbread dressing.

Chef Michael: How much time? 30 seconds. Oh, I forgot the dressing for the escargot.

Timekeeper: 15 seconds to go.

Chef Michael: Get it. Get it out of the oven.

Timekeeper: There are still things hitting the plate. 10 seconds.

Chef Michael: Now.

Timekeeper: Five, four, three, two, one.

Plates down everyone and step away.

Katy Milkman: That could be a scene from any number of reality TV cooking shows: Iron Chef or Chopped or Extreme Cook-Off or Cutthroat Kitchen. All of these shows have an element of time pressure, pressure that can focus a chef’s mind or completely derail a dish. In this episode of Choiceology, we’ll look at why a shortage of time or money or other resources has such a significant impact on how we behave. I’m Katy Milkman and this is Choiceology, an original podcast from Charles Schwab. It’s a show about the psychology and economics behind the decisions people make. We bring you true stories involving high-stakes choices. And then we explore the latest research in behavioral science to help you avoid costly mistakes and reach your goals.

Howard Warshaw: So Yar’s Revenge was my first game. This was my first assignment at Atari. I’d only been there a couple of days.

Katy Milkman: This is Howard Scott Warshaw.

Howard Warshaw: In the early ’80s, I was a video game developer at Atari.

Katy Milkman: Howard was a talented developer with a knack for creating rich worlds for his games.

Howard Warshaw: So with Yar’s Revenge, when you plug it in, you’re going to see a very colorful strip in the center of the screen. It’s a glittering colorful mass, which I put in because it was good eye candy. And what you’re seeing there is the eviscerated remains of the planet Razak Four. And what’s going on in the game is you are represented by a fly-like creature called a Yar. And …

Katy Milkman: Howard had created a very detailed backstory for Yar’s Revenge, which captured players’ imaginations.

Howard Warshaw: … to create the weapon. Then you have to guide, aim, and fire the weapon appropriately and try and catch the monster. And if you do, you get the first full-screen explosion in the history of video games.

That game took approximately seven months to develop, another five months to release because it was the most tested game in Atari history for a variety of reasons.

Katy Milkman: 12 months to develop and test the game before it was released to the public. File that timeline away, because as great as Yar’s Revenge was, it’s not the main reason we wanted to talk to Howard. There’s another game that he worked on that had a slightly different outcome for Atari.

After the success of Yar’s Revenge, Howard was given a new high-profile assignment, to design a game based on the blockbuster Steven Spielberg movie Raiders of the Lost Ark. It was the first video game based on a movie. Raiders was in development for about nine months. It was a complex project on a tight timeline. But Howard managed to create another successful title for Atari. It was the next Spielberg title that would really ratchet up the pressure.

Howard Warshaw: Steven Spielberg did a movie called E.T. This movie was huge, was really a remarkable motion picture. And it became, I think, the best-selling motion picture of the time.

Katy Milkman: You probably know E.T. the Extra-Terrestrial, the story of a gentle alien trying to find his way home from Earth. It was the highest-grossing movie of 1982, raking in over $790 million at the box office.

Howard Warshaw: E.T. was a huge, huge movie at the time. It was one of the biggest movie properties out there. And Atari seeing themselves as the biggest game producer at the time, thinking, “Oh, we’ve just discovered this amazing idea of licensing movie properties for video games.” So they decided, “We’ve got to have E.T. and make a game for it.” But the negotiations kept dragging on and on and on and on, and it went like crazy for a while.

Katy Milkman: But Atari ultimately sealed the licensing deal for E.T. the video game.

Howard Warshaw: So now, once you have the rights, all we have to do is make the game. That’s the way management would think.

Katy Milkman: Sounds straightforward. Atari had done this before. They could do it again. But then came the production timeline.

Howard Warshaw: It was deemed that if we wanted to have things available for the Christmas market, which means on shelves sometime early in November, then the game has to be delivered to manufacturing September 1st. And I got a call asking me if I would be willing to hold for the CEO of the company, and I said, “Sure. He signs my checks. I will definitely hold for him.” And he comes on the phone, says, “Howard, we need E.T., and we need it for September 1st.” I realized this was just five weeks away. And I thought about it a second. He says, “Can you do it? Can you deliver the game for September 1st?” And I said to him, “Absolutely, I can.”

Katy Milkman: Five weeks to design and code a video game? Remember, the timeline for the previous game was nine months, 12 months total for the game before that. So Howard had to quickly rethink his approach.

Howard Warshaw: When it comes to designing a game to be done in five weeks, you don’t think of a typical six-month game and try to do that in five weeks because that’s suicide, right? So I thought about what kinds of things can I do? What kind of things can I do quickly, developmentally on a computer, that will deliver a game? What I came up with was a treasure hunt concept. And that’s the idea of E.T. essentially goes on a scavenger hunt in the movie to put together and cobble together the pieces of a phone that he uses to call his buddies to come pick him up.

Katy Milkman: A simple premise, and one that tapped into the iconic storyline of E.T. desperately trying to phone home. Howard began to imagine how the game would look and feel.

Howard Warshaw: So when you start the game, a spaceship comes down and drops you off. You’re E.T., and you are now stranded on this planet that’s like a cube. And you’re in the forest, which is at the top of the cube. The bottom of the cube is like civilization. That’s where Elliot’s house and the FBI headquarters and the science lab are. And then the other four sides are in between. That’s all fields of pits. Your goal is when you land is to run around and find phone pieces, which are scattered randomly around a whole bunch of different pits. When you have all the pieces together, now you have to go and find a place from which you can transmit your call, safely. And that was the design that I felt I could deliver in five weeks.

Designing a game to be done in five weeks is one thing. Actually doing a game in five weeks, that’s another thing entirely. It forced me to pose the interesting question to myself: How do you make yourself absolutely maximally productive? So naturally, everything in my life fell away because all there was going to be for five weeks was me working on the game. And that was it. So I had a development system moved into my home. Now, if I was at home or if I was at work, I was never more than two minutes away from actually entering code and doing it. On average, I would say I was pulling 16 to 18 hours a day.

Katy Milkman: Needless to say, Howard was hyper-focused on the task at hand.

Howard Warshaw: Now, an interesting thing that goes on when you’re a programmer is just because you’re not at a computer doesn’t mean you’re not programming in your head. I can literally write code in my head and debug it and work on it. There was one time in particular, I remember, where I was driving home from Atari. And I was really coming up with a solution to something I’d been thinking about for a little while. I thought, “Oh yeah, this is how you do that.” And I’m riding along composing the code in my head, verifying it. I know it’s going to work. I’m pretty excited. I’m pretty stoked. And I look up ahead a little bit and I can’t help noticing that I’m approaching an intersection and the cars in the other direction, in the cross direction, they’re starting to pull out into the intersection. I’m thinking to myself, “Well, that’s weird.” Because I’m coming off the intersection. I have every intention of driving right through, and those cars are going to be in my way. That’s going to be a problem.

And then I thought to myself, “You know, if they have a green light, I probably have a red light.” And it was honestly only in that moment that I looked up, noticed the light was red, hit my brakes, and skidded to a stop just before the intersection. And holy crap. But that’s the way programmer brain works at times. I was so laser-focused. I was so looking at such little microcosmic aspects of whatever was going on because that’s what code is. It’s such little nitpicky dinky things. And every little detail is what you’re paying attention to that I didn’t notice what the lights were. I just noticed the motion of the traffic. Once my adrenaline calmed down a little bit and I recovered my breath and thought, “Wow, if I’m going to make it through five weeks, I need to survive.” So I tried to be more careful driving.

Katy Milkman: Anyone who has written code will relate to this. Coding just takes over your psyche when you’re working on it around the clock. For Howard, five weeks passed, thankfully with no major car accidents. And it came time to deliver the game.

Howard Warshaw: So when I finished the game, I finished it basically on August 31st in the evening. And then I come into work on September 1st because this is Spielberg day. This is when Steven Spielberg is going to come up, and he’s the one who’s going to approve the game. Then he played it a little bit. He said it’s great. And so he approves the game and that’s it.

Katy Milkman: He did it. Howard had pulled off the impossible. He had developed and delivered a major title for Atari in five weeks.

Howard Warshaw: It had been finished; it had been done and delivered. Then you don’t hear anything until we get towards the end of 1982 around December. That’s when the Billboard sales figures for video games start coming out. Lo and behold, there’s a point in early December, mid-December where I look at the Billboard numbers and both Raiders of the Lost Ark and E.T. are in the top seven or eight titles. And it’s like I have two games in the Billboard top 10 at the same time. This was a good time to be Howard. It was all good.

And then, what happened was occasionally executives would come by. They would come by development every once in a while. They would come up to me, and they’d go, “You know something, Howard, we don’t blame you.” Now, I would hear this stuff and I would think, “OK. It’s OK to not be blamed. I don’t have a problem with not being blamed for something.” But I had no idea what they were talking about. I didn’t ask. The interesting thing about E.T. was it was most commonly given as a Christmas present, which means a lot of people didn’t start playing it until Christmas.

Katy Milkman: And it was shortly after Christmas when customers began returning the video game to stores.

Howard Warshaw: And there was about a million returns. That’s a lot of returns.

The game was disliked. I’ve given this a tremendous amount of thought. I mean, the easy answer is it’s the pits. People fall into the pits, and they don’t understand why but that’s not really the answer. The real answer to what’s wrong with E.T. is it commits the ultimate video game sin. And that is that it went beyond frustration and it went into disorientation, that the game E.T. disorients the user. In video games, frustration is an essential component. It’s necessary. If there’s no frustration, there’s no satisfaction to achieving things and there’s no gratification to playing the game. So every video game has to have frustration. What it can’t have is disorientation. Disorientation is suddenly not understanding where I am, what I’m trying to do, or what’s going on. There were too many situations in which the player could become disoriented. And that was a big mistake on my part.

Katy Milkman: That mistake had a lot to do with the development timeline.

Howard Warshaw: What I didn’t have with E.T. was time to tune the game. Tuning is such a critical part of any game. There was just so little time that there wasn’t any room to step back. And that’s so important to … taking off your own blinders is a very important thing in design. The things like the disorientation could have been addressed had there been more time. I never had that opportunity with E.T. But the truth is, by the time reviews were coming out and saying what a horrible game it is, there were so many other real problems going on. And Atari was literally falling apart and just shrinking down to nothing. This was the same time when the two chief officers of the company were being investigated by the SEC for improper stock manipulation and insider trading. It wasn’t until later into the ’90s when people started to really identify E.T. as the cause of the video game crash and the thing that really ruined everything.

Katy Milkman: The video game crash was a large-scale recession in the video game industry that lasted from 1983 to 1985. Sales dropped by nearly 97% in the United States.

Howard Warshaw: I did one of the best games of all time, one of the real founding games in terms of developing standards and establishing practices in the video game industry. But the game that I’m really noted for is the one that supposedly destroyed the industry.

Katy Milkman: The E.T. game had failed so completely that Atari was stuck with hundreds of thousands of unsold or returned game cartridges. The company decided to bury the inventory in a dump in New Mexico. Howard’s reputation as the designer of what someone called the worst commercial video game ever would haunt him for years. But time passed. And classic video game fans eventually began to see the story in a new light.

Howard Warshaw: On April 26 in 2014, there was the big dig in Alamogordo, New Mexico, where supposedly all the E.T. cartridges were buried. So I was there with a film crew and with all the other people and literally 4 or 500 fans who had shown up in a garbage dump in the middle of a dust storm to see what we’re going to find. That was a very interesting time, very interesting day. And it was a tough day. It was an arduous day. There was a lot of anticipation, a lot of weird feelings. And ultimately, they did find it. I never thought they would. I never believed any of the stuff was there. But when the thing did come up, when it finally came up and came out of the ground, I was overwhelmed, emotionally. I really was. And they asked me to comment. I could barely choke the words out.

And I realized in that moment that this little thing that I did in five weeks over 30 years ago was still generating entertainment. I felt such an incredible sense of success in that moment that I had reached so many people and provided a moment, a great moment for a lot of people. I was just extremely proud and honestly a little overwhelmed to be in that place at that time. It was an amazing day.

Katy Milkman: Howard Scott Warshaw is a practicing psychotherapist in Silicon Valley and a former video game developer for Atari.

There were several different factors that contributed to the spectacular failure of the E.T. video game, including increased competition and an industry-wide decline in game quality. But the one factor I’d like to zoom in on is the impact of the extremely tight timeline on Howard Scott Warshaw. For the five weeks he was designing and developing the game, he basically thought of nothing else. The scene where he nearly ran through a red light into a busy intersection illustrates how almost all of Howard’s mental bandwidth was taken up by the project. Of course, hyper-focus can be good. It helps us meet deadlines and complete projects. But that focus comes at a cost. In the case of the E.T. video game, there was a serious cost in failing to see the big picture and to test the game to get feedback on the features that might not go over well with consumers.

I’m going to give you another example of this focusing effect but in a different setting. Instead of designing a game, we’re playing a game. And there’s no real time pressure, but the competition is quite unfair. We’ve set up a bean-bag-target game with two players. One player was given five bean bags. The other player only got one. We haven’t explained the reason for the difference in their alignment. Let’s listen to each player’s approach. First, the player with one bean bag.

Host: What is your strategy for tossing this bean bag here? How are you going to win this competition?

One-Bag Player: Well, it’s a pretty thin one. Going to think about it for a while. I’m probably going to rock my arm back and forward a few times, sort of feel the weight, sort of try and see if I can feel the weight and find a good angle.

Host: All right. When you’re ready.

One-Bag Player: Ah.

Watcher: Wow.

One-Bag Player: Well, if the target is like a clock, it’s like at two o’clock and it’s, I don’t know, three inches from the center.

Host: And how do you feel about that toss?

One-Bag Player: I think that’s pretty good. I think I’m comfortable with what I got here.

Katy Milkman: And now the player with five bean bags.

Five-Bag Player: Well, I’m feeling pretty good. I’ve got five bean bags here. So I have the opportunity to throw, adjust, throw again, adjust. I sort of feel like this is a no-lose proposition.

Host: OK, great. When you’re ready.

Five-Bag Player: OK.

Ooh. It came up a little short, like maybe four feet short of the target. So I’m going to have to give this one … toss number two, I’m going to have to give it a little more weight. A little more weight, a little more velocity.

Watcher: We’re good.

Five-Bag Player: Oh. Now, toss number two, a little too much weight and velocity. I now overshot the target by two feet.

OK, I’m nervous. Because now I’m almost 50% through my bean bag allotment here. OK?


Oh, I’m getting worse.

Oh, I’m humiliated. I’m humiliated. I had five chances and I lost.

Host: How close did you get to the target with your best shot?

Five-Bag Player: Not even close. I mean, not even on the … I don’t know, two feet. My closest was two feet. My furthest was like five feet.

Katy Milkman: This is one example in a very unscientific experiment. But we did run several instances of the game with different players. And we found that more often than not, the player with one bean bag was more accurate with one throw than the average accuracy of the player with five bean bags.

Five-Bag Player 2: OK. This is my last shot. That one was not great.

That was also not great.

Katy Milkman: In the story about the E.T. video game, Howard Scott Warshaw was seriously short on time to complete a complex project. In our bean-bag-tossing game, some of our volunteers were rich when it came to tossing attempts. They had lots of bean bags. And some were poor. They had only one. Both examples highlight the effect of scarcity on how we behave. Howard was so time-starved that he experienced tunnel vision. His hyper-focus on getting the game completed by an unreasonably tight deadline meant that he missed things. He was too focused to step back and see the bigger picture, to anticipate how users would interact with the game or even to test the game properly and get outside feedback.

Our bean bag game highlights another important thing about scarcity, though. Hyper-focus can be good. The volunteers in our experiment who had a scarcity of bean bags were much more careful about how they use them. Generally speaking, they were significantly more accurate with their one throw than the rich volunteers who had more opportunities to toss bean bags. Of course, it’s better to have more chances when you’re working towards any goal. But we tend to be more careful and accurate with any given opportunity. When facing scarcity, every chance is more important, so we do more to make it count. Scarcity of time or money or other resources captures your mind. That focus can be helpful in the case of the bean bag toss or problematic in the case of the E.T. video game. The impact of scarcity on how we make decisions is a fascinating subject. And some of the most important work in this area comes from Sendhil Mullainathan, who’s co-author with Eldar Shafir of the book Scarcity: Why Having Too Little Means So Much. Sendhil, thank you so much for joining me.

Sendhil Mullainathan: Oh, it’s my pleasure. I wish it were in person but this will have to do.

Katy Milkman: Could you first tell me a little bit about where the idea to study scarcity came from?

Sendhil Mullainathan: A lot of it came from work that Eldar Shafir and I were doing. We basically spent a long time just trying to wrestle with a bunch of the issues that come up when you just look at how people think about poor people and about the lives of the poor. And it’s just a striking thing that when you look from the outside, it’s very tempting to say, “Wow, the poor make a lot of mistakes.” Yet from the inside, it appears that the lives of the poor from their perspective are just very, very complex. And it’s almost like you’re watching someone play a very, very hard game, and you don’t appreciate how hard the game is.

So you’re like, “Wow, they’re not doing a very good job.” And so trying to wrestle with that idea and trying to make sense of it is really where some of the ideas came from.

Katy Milkman: Could you give us a high-level overview of what you see as the key findings from the scarcity work you’ve done?

Sendhil Mullainathan: Yeah, I think in the scarcity work, I’d say there’s a couple of insights that are pretty important takeaways. So one insight is that we observed that being poor seems to hinder and worsen decision-making. And I think the easy explanation for that is, “Oh, well the poor are just worse, less-talented people. They make more mistakes because they’re just not good.” One of the key findings that we show is actually, no, that the causality kind of runs in the other direction, that being poor, any of us being poor, would actually have less cognitive capacity. That poverty itself taps us of mental energy.

And the other key finding, which is kind of a corollary of that that I walk away with, is that it’s almost wrong to talk about the poor. Because that gets us to think about people as if there was something dispositionally different about the people who are poor. I’m finding it more and more useful to talk about what poverty does to all of us. And that move towards recognizing that it’s the situation rather than the person obviously is not new to us. It’s an old history in social psychology which says we often make attributions to individuals, dispositional attributions, that we ought to make to the situation.

Katy Milkman: Could you dive a little bit into some of the studies you’ve done on scarcity? Maybe even pick your favorite one and tell us a little bit about a favorite study on scarcity.

Sendhil Mullainathan: Yeah, I would say I have two that I really like. So, one was, besides with Eldar, was with Jiaying Zhao and Anandi Mani, and it was work on sugarcane farmers. That may seem alien to some people, but ultimately, people are people. And what was interesting about sugarcane farmers is that they get all their payments … their entire earning roughly shows up at one moment. It’s like you’re getting your salary on June 1st or something. And as a result, July and August are good months. But then the money starts to run dry by the following March, April, May.

So you have these lean seasons where these farmers are poor. And then the cash comes in and they’re rich. Which means you get to see the same person when they’re poor and when they’re rich. In that study at least, what we found was that by looking at that same person, they actually did much worse on a bunch of cognitive tests, effectively acting as if they had less cognitive capacity when they were poor. Suddenly when they got rich, they look like they got smarter. And that was really illuminating to me. So I thought that was very interesting and it showed, oh, maybe in some contexts at least there is a big effect of poverty itself on mental load or bandwidth.

The other study I like is with Anuj Shah and Eldar Shafir. It’s stuff that shows that a lot of the things that you and I might do that are actually not that rational—the poor don’t do that. So my favorite one of these is if I said to you, “Hey Katy, there’s a $20 thing I’m buying. And I just saw it on sale for $15 on the other side of town. It’s 30 minutes. Should I go?” Or if I said I’m buying a $500 thing and it’s on sale on the other side of town, 30 minutes for $495, most of us would think it’s foolish to travel, spend that much time for a $5 savings on $500, but would happily travel that time for a $5 savings on $20. And that’s because we think in percentages.

Wow. Five on 20 is a big saving, five on 500 is not a big saving. But of course, that’s foolish. You’re not saving a percentage; you’re still only saving $5. What’s interesting is that’s the kind of study you can do on pretty much any well-off population: Undergrads, MBAs, whatever, and you’ll find it. But you do that same thing on the poor, and they don’t show it. They act totally rationally or at least much closer to rationally. They say, “Oh, $5 is $5.” And I like those studies because it’s a nice reminder that while poverty taxes the mind because it puts a lot on your plate, the poor also have developed an expertise because they actually need to focus on dollars because dollars matter. Those two for me are the double-sided effects of what poverty brings.

Katy Milkman: Given that we all face scarcity to some degree in our lives, or most of us do, even if it’s not poverty, what kind of advice do you have based on this research you’ve done on how we can avoid bad decisions when we face different kinds of scarcity?

Sendhil Mullainathan: For people who are not poor but people who are, say, time-poor, I think one of the biggest insights that I have started implementing is that we often think that we’re in the business of time management, which I think is highly misleading. I think we’re actually in the business of bandwidth management. And bandwidth operates according to different rules than time. I actually think even the calendar is itself a very bad user interface because it plays to this kind of misperception. Because here’s an example. If you see your calendar and you say, “Wow, I’ve got 45 minutes free right here. I’ll just put in a meeting right there.” What you’re thinking is, “Yes, I can show up at that meeting and be there and be present physically.” But can you be present mentally? Do you need to be present mentally? Is this a meeting where you just need to show up and give 25% of your bandwidth? Or is this a meeting where you need 100% of your bandwidth?

If it’s 100% of your bandwidth, what were the meetings before it? Maybe there was a meeting before it that was going to create a bunch of anxiety and a bunch of overload that’s going to carry on to the next meeting. That bandwidth doesn’t just switch like time does. You need to think of arranging your time, not like you might arrange your pantry where, “Oh, can I squeeze this thing in here?” But instead, arranging your time like you might arrange artwork on the wall. “Does this actually fit conceptually next to this thing?” Not “Can I squeeze it in?” And that way of arranging time totally changes things. So you might, for example, say, “Oh, what I really need to do is to find my high-bandwidth meetings and build my calendar around them and make sure that when I arrive at those meetings, I have a lot of bandwidth for it.” And the rest can slot their way in. That’s an example of a thing that I often do.

Katy Milkman: Thank you for doing this. I so appreciate you joining me, Sendhil.

Sendhil Mullainathan: Well, this was fun, Katy. Thank you.

Katy Milkman: Sendhil Mullainathan is the Roman Family University Professor of Computation and Behavioral Science at the University of Chicago Booth School of Business. He’s also a co-author of the book Scarcity: Why Having Too Little Means So Much. There’s a link to the book in the show notes and at

Anuj Shah is one of Sendhil’s collaborators. And he’s made some fascinating observations about how scarcity affects us. His research was also the inspiration for our bean-bag-tossing experiment.

Hi, Anuj. I’m so glad you could be here today. Thanks for joining me.

Anuj Shah: Yeah, hi, Katy. Thanks for having me.

Katy Milkman: So to what extent have you guys uncovered solutions for this bias?

Anuj Shah: Well, we haven’t necessarily ourselves uncovered new solutions. I think this work has given us a helpful lens for thinking about existing solutions that might be particularly effective for those who are dealing with scarcity. Reminders, for example, are very effective at getting people to save. One reason now that we can appreciate why that is, is because when you’re dealing with a limited budget, whether it’s money or time, you get really focused on some problems. And those reminders sort of help you reset what you’re thinking about or they put something on your radar that might’ve slipped off.

Katy Milkman: That’s a great example. I like that a lot.

Anuj Shah: And so there’s one more from the financial domain as well. So people often wonder, well, payday loans are super expensive. And why is it that people are taking these loans? Surely if we just communicated the costs of these loans then that would help people understand that they might not be a good deal.

So there’s work by my colleague Marianne Bertrand and Adair Morse where they test different ways to communicate the cost of a payday loan. And in one frame, what they do is they talk about the annualized interest rate, which can, of course, be above 500%, and that sounds kind of shocking when you hear it in those terms. But another way they talk about the cost of loans is to talk about the concrete dollar amount. Here’s what you owe if you take this loan. What they find is that when you talk about the concrete dollar amount, that it’s more effective at changing people’s behavior or their likelihood to take up a loan than when you talk about the annualized interest rate.

And I think the work that I was mentioning about how the poor think about tradeoffs more often, it can sort of help explain this, which is that when you talk about the actual monetary cost of a loan, well, that just resonates a lot more. Because it makes it easy to think about, “If I take this loan, what do I have to give up?” Whereas when you talk about the annualized interest rate, it’s a lot harder to connect that to something.

Katy Milkman: Thank you so much, Anuj. This was fantastic.

Anuj Shah: Yeah, thank you so much.

Katy Milkman: Anuj Shah is an associate professor of behavioral science at the University of Chicago Booth School of Business.

The amount of time or money you have obviously impacts how you make financial decisions. And our sister podcast, Financial Decoder, is all about the way cognitive and emotional biases might be clouding your judgment and costing you money. Check it out at or wherever you listen to podcasts.

Scarcity is a challenging phenomenon because we can’t always control the amount of time or money or other resources we need. But it’s useful to know that the way you make decisions will change in times of scarcity—and not always for the better. Planning ahead is one way to relieve your mental burden during times of scarcity. If you have a big project coming up, you might need to plan to get help looking after your kids. You might proactively delegate lower-priority tasks to free up brainpower for more important things. Making sure in advance that you have enough time for complex tasks like completing tax forms, applying for your dream job, or finishing an important project at home or at work can help ensure that you won’t miss key steps.

Anuj also made an incredibly important point about reminders. Typically, we can rely on our own memory and peripheral vision to keep us from missing important opportunities. But when we face resource scarcity, that really isn’t the case. When you interact with others facing scarce resources, don’t expect them to notice or remember important things. Provide reminders and alerts. And ask others to do the same for you or set up systems that will remind you what needs to be done when.

You’ve been listening to Choiceology, an original podcast from Charles Schwab. If you’ve enjoyed the show, leave us a review on Apple Podcasts. You can subscribe for free in your favorite podcasting apps. That way, you won’t miss an episode. Next time, we’ll explore how offering advice can have a positive effect on the person giving it, whether that person is a student, a parent, or a world-famous drummer. I’m Katy Milkman. Talk to you next time.

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