What is Scarcity Error?

WHAT IS NEGLECT OF PROBABILITY AND WHY THE LAST COOKIE IN THE JAR MAKES YOUR MOUTH WATER

Coffee at a friend’s house. We sat trying to make conversation while her three children grappled with one another on the floor. Suddenly I remembered that I had brought some glass marbles with me – a whole bag full. I spilled them out on the floor, in the hope that the little angels would play with them in peace. Far from it: a heated argument ensued. I didn’t understand what was happening until I looked more closely. Among the countless marbles there was just one blue one, and the children scrambled for it. All the marbles were exactly the same size and shiny and bright. But the blue one had an advantage over the others – it was one of a kind. I had to laugh at how childish children are!

In August 2005, when I heard that Google would launch its own email service, I was dead set on getting an account. (In the end I did.) At the time, new accounts were very restricted and were given out only on invitation. This made me want one even more. But why? Certainly not because I needed another email account (back then, I already had four), nor because Gmail was better than the competition, but simply because not everyone had access to it. Looking back, I have to laugh at how childish adults are!

Rara sunt cara, said the Romans.

Rare is valuable.

In fact, the scarcity error is as old as mankind. My friend with the three children is a part-time real-estate agent. Whenever she has an interested buyer who cannot decide, she calls and says ‘A doctor from London saw the plot of land yesterday. He liked it a lot. What about you? Are you still interested?’ The doctor from London – sometimes it’s a professor or a banker – is, of course, fictitious. The effect is very real, though: it causes prospects to see the opportunity disappearing before their eyes, so they act and close the deal. Why? This is the potential shortage of supply, yet again. Objectively, this situation is incomprehensible: either the prospect wants the land for the set price or he does not – regardless of any doctors from London.

To assess the quality of cookies, Professor Stephen Worchel split participants into two groups. The first group received an entire box of cookies, and the second group just two. In the end, the subjects with just two cookies rated the quality much higher than the first group did. The experiment was repeated several times and always showed the same result.

‘Only while stocks last,’ the adverts alert. ‘Today only,’ warn the posters. Gallery owners take advantage of the scarcity error by placing red ‘sold’ dots under most of their paintings, transforming the remaining few works into rare items that must be snatched up quickly. We collect stamps, coins, vintage cars even when they serve no practical purpose. The post office doesn’t accept the old stamps, the banks don’t take old coins, and the vintage cars are no longer allowed on the road. These are all side issues; the attraction is that they are in short supply.

In one study, students were asked to arrange ten posters in order of attractiveness – with the agreement that afterward they could keep one poster as a reward for their participation. Five minutes later, they were told that the poster with the third highest rating was no longer available. Then they were asked to judge all ten from scratch. The poster that was no longer available was suddenly classified as the most beautiful. In psychology, this phenomenon is called reactance: when we are deprived of an option, we suddenly deem it more attractive. It is a kind of act of defiance. It is also known as the Romeo and Juliet effect: because the love between the tragic Shakespearean teenagers is forbidden, it knows no bounds. This yearning does not necessarily have to be a romantic one; in the U.S., student parties are often littered with desperately drunk teenagers – just because it’s illegal to drink below the age of 21.

In conclusion: the typical response to scarcity is a lapse in clear thinking. Assess products and services solely on the basis of their price and benefits. It should be of no importance if an item is disappearing fast, nor if any doctors from London take an interest.

Next:
Base-Rate Neglect – WHEN YOU HEAR HOOFBEATS, DON’T EXPECT A ZEBRA

Similar Biases:
Contrast Effect – LEAVE YOUR SUPERMODEL FRIENDS AT HOME
Fear of Regret – WHY ‘LAST CHANCES’ MAKE US PANIC
House-Money Effect – WHY MONEY IS NOT NAKED

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Neglect of Probability – WHY YOU’LL SOON BE PLAYING MEGATRILLIONS

The above article is from the book The Art of Thinking Clearly by Rolf Dobelli. The article is only for educational and informative purposes to explain and understand cognitive biases. It is a great book, definitely worth a read!