#33 Scarcity Bias: Why you always want what you can’t have

Given the choice between two items, why do our brains try to convince us to choose the rarer one? In this episode, Mel and Dan explore the Scarcity Bias, and why people line up for days to buy sneakers.

Dan (00:00):

Just stop. Shush. Get out of it. I'm bringing a new persona to 2021. Don't get in my way.

Mel (00:08):

Wow.

Dan (00:10):

No.

Mel (00:27):

Hi and welcome to Bad Decisions.

Dan (00:29):

The podcast that helps us understand why we choose what we choose.

Mel (00:32):

Why we think what we think.

Dan (00:33):

And how do we exploit this stuff for fun and commercial gain.

Mel (00:36):

Always ethically.

Dan (00:37):

Always.

Mel (00:38):

Always. I'm Dr. Mel Weinberg. I'm a performance psychologist.

Dan (00:42):

And I'm Dan Monheit, co-founder of Hardhat.

Mel (00:44):

And here is [inaudible 00:00:45] with the music.

Dan (00:50):

Wow. Big year, 2021. We made it. Welcome.

Mel (00:54):

Yeah. Yeah. Well, thank you. Nobody's actually welcomed me to the new year, so that's very kind of you.

Dan (00:59):

That's my official responsibility. I've been working through my list. I only just got to W. Sorry it's taken me to February, but we are here now. Whoa. Big year. Lot of really interesting things from behavioral perspective, hey?

Mel (01:12):

Such as?

Dan (01:13):

Such as everything.

Mel (01:14):

It's been a big year. You're talking COVID?

Dan (01:17):

Yeah. How about you give me a list of things that didn't change, and then I'll give you a list of things that did, all right? My hairstyle.

Mel (01:22):

Let's go straight into the big things that...

Dan (01:25):

My hairstyle didn't change. I'm holding strong. One big category of change we can look at from last year is how many things that for, as far back as we can remember, were in abundance, and then suddenly became very scarce. And at the same time, how many things that were at one point in time, very, very scarce. And then whether we like it or not, became very, very abundant.

Mel (01:48):

Yeah. So you're talking about like changes to things that we just took for granted, that we'd always sort of have. And then all of a sudden there were restrictions imposed, or toilet paper. The old toilet paper, yeah?

Dan (01:59):

Things like, I mean, I wouldn't go as far as saying civil liberties, but yes. I mean, in January of last year, if you wanted to go for a walk anytime day or night, you could. If you wanted to go to the supermarket and buy pasta sauce, or toilet paper, or soap, or hand sanitizer, you could. And then by March, you couldn't do most of those things as and when you pleased. And the opposite is also true, where things like time with your kids, which was once very, very limited, suddenly became you're also now a full-time homeschooling teacher person, and you cannot be more than five kilometers from your children at any time for the next six months.

Mel (02:36):

Is there anything you need to get off your chest, Dan?

Dan (02:37):

No, I love my children, but I'm just reflecting on how quickly things can flip between the two.

Mel (02:46):

Right. And so this difference, this distinction between things being abundant or things being scarce makes a big difference to our behavior when it comes to how much we want or how much we're willing to pay for the items in question. And you know what that does, Dan? It brings us to a wonderful point where we can actually talk about a heuristic, that is related to all of this stuff that you've been talking about.

Dan (03:06):

Bring it on. 2021's first heuristic. What do we got?

Mel (03:09):

It's called the scarcity bias, or the scarcity heuristic.

Dan (03:12):

(singing)

Mel (03:18):

It is exactly is as you've described, the tendency for us to place more value on things that we perceive to be more rare than things that we perceive to be in abundance.

Dan (03:28):

And how long will this scarcity heuristic be available for?

Mel (03:31):

Well, it's in short supply, but we are only going to talk about it for about the next 15 minutes.

Dan (03:36):

Whoa. Shit. All right. Well, we better get straight onto it. So this is one of those ones where in a lot of respects, it feels very obvious. That if we can't get hold of something, we probably want it more. And I think that the evolutionary handwriting for this is pretty obvious. So for most of our existence, a lot of things that we wanted were very hard to get, very dangerous to get, or actually very scarce. So it was hard to get food, it was hard to get shelter. So it makes a lot of sense that we would be wired to want stuff that was in short supply. But what's weird is, I mean, today, most things that we need for our basic survival are not in short supply. And I think most of what we would consider scarce today, I think our cave people selves would probably laugh at the notion that we'd be lusting after things simply because of the perception that they are not readily available.

Mel (04:29):

Right. And this is how... if I may, I'm sure our listeners are hanging out for the research. So this is how a lot of the research has been designed, basically to manipulate the perception of scarcity rather than the actuality of it, and to see how people respond. So if I may have some research music please, [inaudible 00:04:48].

Speaker 4 (04:48):

It's alive.

Speaker 5 (04:48):

That's the attitude. You can sell anything? Sell me this fucking pen right here. You can sell anything? Sell that. Go ahead. Sell me that pen.

Speaker 6 (05:00):

Can I finish eating first? I need [inaudible 00:05:02].

Mel (05:02):

Essentially, there's a series of studies where the essence of them all is the same. They'll have two things on offer, two options, I guess of a similar good, like two flavors of cookies, for example, or two ballpoint pens, or two key rings in less exciting variations of these sorts of studies, certainly less tasty ones. And what they do is they first check that the two items are valued similarly at the start by participants. And then what they do is they introduce manipulations where they will change either the scarcity, or the availability, or abundance of one of these goods, and they present the object back to participants with this added context: "You have a choice of two cookies, but this one, there's only two of them left and this other one, there's 20 of them left."

Mel (05:52):

And all of a sudden you see that people's preference for these goods, how desirable they rate it and how valuable they rate it, increases significantly once they know that it is in short supply. So the cookie study was done by Worchel, Lee and Adewald in 1975. And then there were a bunch of studies in between, but another common one that's cited is by Luigi Matone and Luchea Salvadori in 2009, who used the ballpoint pens or key rings. And they found that the preference for the good increased by up to 23% in the scarce condition compared to the abundant conditions.

Dan (06:34):

Spare a thought here. I mean, I do feel bad for the researchers that have to try and make key rings and ballpoint pens seem scarce. I mean, I've never really understood the rationale for better funding for research projects, but if you're scrapping around trying to get people to lust off the caterings, you're probably working too hard.

Mel (06:52):

Sometimes you've got to do what you got to do, Dan for the purposes of scientific research.

Dan (06:57):

I know, but what pricked my ears up here...did you say 23% more, people willing to pay up to 23% more? Just because of the perception?

Mel (07:05):

So, I know that they're willing to pay up to 23% more, but their preference for the scarce option was 23% higher.

Dan (07:13):

Yeah. Potato, potato.

Mel (07:15):

So there was a 23% increase in something.

Dan (07:17):

Yeah, I mean what is preference, if not a substitute for willingness to pay.

Mel (07:22):

And when did we ever...when did you ever let the details get in the way?

Dan (07:26):

Exactly. So 23% more, just because of the perception of rarity, even in actual fact, there were probably lots of cookies still available or ballpoint pens, or key rings.

Mel (07:36):

Yeah. And there's one thing that they also did that's probably worth noting that the Italian researchers that I mentioned from 2009, they noted that competition increases the chances that scarcity bias is going to impact on your decision-making. If you know that somebody else is going to get the option that you don't choose, so if you don't choose this key ring and remember the only two left, somebody else is going to get it, then you're much more likely to choose the scarce one. Like it's like, oh, well I want it. Like, I don't want them to have it because there's something special about this. So better I have the special thing than them.

Dan (08:09):

You just said one thing that was actually two things, right. You said I want it. And also I don't want them to have it, even if I don't want it that much. I want it enough to not want anybody else to get it that I'm just going to go and buy it.

Mel (08:21):

Aren't we funny humans?

Dan (08:23):

This idea of a perception of scarcity, I think, is more relevant than ever now because throughout our entire history, and remember even up into the seventies, probably when it came down to business, the thing that was really hard was making stuff. Because you had to somehow coordinate supply chains from other sides of the world and get stuff into a place like Australia. And the idea was stuff was kind of hard to make but easy to sell. If you could land product here, oftentimes you could flog it.

Dan (08:51):

And I think what we've seen in the last 20 or 30 years is that it is now kind of easy to make most stuff. I mean, it's not easy to make an iPhone, but most things are easy to make. Most of us can go onto AliExpress and start importing bicycle parts, or USB powered fans or bell bottom jeans. If that's what we decide, we want to start making, but it's really hard to sell, right? Because everyone's trying to sell stuff through social channels and through e-commerce and through retail stores. And so we've gone from a world where it was hard to make easy to sell, into a world where it is easy to make, hard to sell. And really one of the best weapons I think we have at our disposal is being able to create a perception of scarcity. When in reality, there probably isn't one.

Mel (09:35):

Right, there's a big thing here about where the scarcity is coming from and you're talking about situations where you can potentially manipulate, strategically manipulate the scarcity of an object or the perception of it.

Dan (09:48):

I don't know about manipulate, but yes.

Mel (09:51):

Use whatever word you want. You can suggest or yeah, let's do something to alter the perception of scarcity for people. And I guess the reasons underlying people's tendencies to do this are really strong and really, really deeply sort of...they're inherent. And that's why I think it's one of those things where even though it like you say, it might be so easy to produce things, why it might actually work in favor of brands to sometimes produce limited amounts. And I think that they know that there are a couple of key factors, two in particular that we'll talk about that contribute to the scarcity bias occurring and the tendency for people to fall victim to it.

Mel (10:32):

We'll just note a couple of underlying sort of theories that contribute to it. First there's commodity theory, which simply states that the perceived unavailability of a resource, that makes it more valuable. So knowing that something is hard to get makes you want it more. There's also uniqueness theory, which is the idea that we have a basic need to set ourselves apart from other people, to differentiate ourselves. And one way that we can make ourselves different or set ourselves apart is by acquiring a rare good that not everybody has access to.

Mel (11:04):

There's also...we've talked about in previous episodes, a couple of heuristics that sort of play a part here. So one is social proof and you'll remember that social proof is our tendency to sort of follow the crowd and do what everybody else is doing. And we'll tend to assume that if something is scarce, it's because lots of other people have already bought it. And so if everybody else has it, then I want it as well. I want to be just like everybody else, which is sort of a little bit against the uniqueness theory, but in a situation where there's actually...there was once a lot of something and now there's maybe less of it. We're more likely to go, well, everybody else has picked that up. I better get one as well. Right? I don't want to miss out.

Dan (11:42):

Restaurants are always the talking point for this stuff. It's like there are a lot of people that want to go to this restaurant. There are limited number of tables in there, so they kind of scarce, but, and while there's lots of other places I could eat, I'm very happy to stand out in front of this restaurant and wait for a table with all of these other people, because it seems like a rare opportunity to get to eat there.

Mel (12:03):

Right, and the other thing that comes into play here as sort of a family favorite that we come back to is loss aversion. The idea that we don't want to feel like we've lost an opportunity to own something, right, because that hurts us. And so the idea with that is like, if we're presented with two options, one that there's plenty of it's in abundance, and one that's scarce, we're tempted to purchase the scarce item. Because if we buy the abundant one, but make the wrong choice, we're not going to be able to come back and get the scarce one. We're going to lose our opportunity to purchase the scarce one. But on the other hand, if we take the scarce one and then later we change our mind about it, we haven't really lost anything. We can always come back and get the one that's in abundance. There's plenty of them.

Dan (12:45):

You can flip the scarce one on eBay. You'll probably come out on top.

Mel (12:48):

Yeah, so there's this huge advantages or perceived advantages to going with the scarce one. Plus the fact that if you have it, nobody else does or somebody else won't. And at the end of the day, that's how we are as humans, we're all horrible creatures. We just want what's best for us and don't care about anybody else.

Dan (13:06):

Well, that is largely true, but there is something that seems to be innate within a lot of us that loves the idea of, if you have something that other people can't get, you must have access to power or money or contact or information that other people don't have, otherwise you can't get that thing. So in our natural desire to create pecking orders in our societies, this really feeds into that.

Mel (13:30):

Yeah, and I think we can also go back to...we can throw in a little shout out to the framing effect as well, because there was something in the framing effect where if you remember, we talked about how it's not really about the object itself. It's just all about how it's presented, and that comes a lot into play here. That there's the perceived value of the good has very little to do with the good itself, but everything to do with the context and whether it's scarce or abundant.

Dan (13:56):

Exactly. I mean, there was a big trend in sneakers as a few years ago, started by a company called Balenciaga. They released a shoe called the Triple S, and it was called a Triple S because it had three midsoles stacked on top of each other. And you talk about the framing effect in one respect, this is a horrifically ugly shoe. On the other hand, it is a horrifically ugly shoe that is $1,200. And there are very, very few pairs available.

Mel (14:26):

How many pairs of them do you own?

Dan (14:27):

Well, I don't want any thank God, but they went absolutely bonkers and nobody could tell you why. I mean, they literally are a diabolical looking shoe, but they were rare, they were expensive and they just struck a chord with people.

Mel (14:42):

So we can sort of capture the ways that you can, I'll say manipulate, I know you don't like that word, but there are a couple of ways that we can actually manipulate the scarcity of a good, right? So one of them has to do with the quantity, so we can limit the quantity. I think you were talking about this before, you can limit the quantity that are actually produced, right?

Dan (15:00):

Yep. Sneakers is one really obvious place where we see this, where especially particular shoes, like there's a particular Jordan...the Air Jordan 11...we could do a whole separate podcast on the Jordan 11...anyway, great shoe, very iconic. Originally from 1995, it was Jordan's comeback shoe after his first retirement. And people love this shoe, and it gets re-released every year, often, multiple times a year in different colorways with different levels of perceived or actual scarcity.

Dan (15:30):

And there was a particular colorway that came out in 2014. It was the legend blue. It wasn't even that rare. I think there were about half a million pairs that got dropped on release date and they were only 200 bucks. So nothing so crazy, but the perception that there weren't many pairs of these meant that from three days out there were people camping out to get these shoes. The day before the stores actually opened, at one store they had 50 police officers dispatched to the site to steady the crowds, there was crowds of people trying to buy $200 sneakers. The day that the shop actually opened, there were riots. Things got set on fire. The doors got broken down. And really just because of the perception that there was a limited quantity of this number of shoes. And we've seen this play out hundreds and hundreds of times since.

Mel (16:18):

Yeah, and that's about limiting the quantity of the product and the flip side of that is that if something is very limited to the point where it's actually rare, then it becomes more valuable. You just have to think of like collector baseball cards or basketball cards and there are certain ones that they're not in high production. And so people will pay a lot more for them simply because they're very hard to get, right?

Dan (16:39):

Absolutely.

Mel (16:40):

Another factor that contributes to scarcity has to do with time, right? So whenever there's a perception that time is limited, and we see this [inaudible 00:16:49] but I'm thinking of limited time only, or this deal is only available for the next 24 hours or the offer expires in a few days, look at me going all marketing on us.

Dan (16:58):

Yeah. I mean, this is a sales technique as old as selling. You see this from signs stuck up in $2 shops basically saying clearance sale today only, to this has almost become a hallmark of things like [inaudible 00:17:16] industry, where there really is no natural limit on how many deals they can make, how long they can offer plans for. So what they do is they add an official constraint that this particular deal, or this particular bundle is only available until the end of February. When, of course they could keep doing it in March and April and May, but they put that artificial constraint in there so people feel that pressure of having to act now so that they don't miss it.

Mel (17:39):

Yeah, and so the final thing, I guess, that we can think about in terms of what we can do to make something more scarce is that we can restrict or sensor access to something, so that it's only available to certain people if they're willing to, I guess, pay for it.

Dan (17:54):

Yeah, exactly, I guess the digital economy is a really interesting place where we see this, where there is a huge abundance of things like news. And once a newspaper puts an article on the website, it can be accessed by billions of people, really for no incremental costs. But to try and get people to assign value to news online, the publishers have had to find some interesting ways to create scarcity. And so this idea of limiting access where a billion people can look at this article, but you Dr. Mel, or you producer [inaudible 00:18:24] could only look at five articles on this website this month and then you just start paying for it, gets us to start thinking that this is a rarer opportunity than it really is and increases the value he might perceive of the content of that publisher. And therefore increases the likelihood that we might actually pay to become a subscriber.

Mel (18:41):

Great. So I think we've covered a lot of scarcity bias. I feel like we've actually gone through a whole bunch of stuff. Is it time to do a little recap? A little summary?

Dan (18:49):

Yeah, I feel like our episode on scarcity bias has been abundant with information and I feel like that that was nice because normally I have to do all the brand stuff by myself, but I feel like you really led me in there. I might just ask you for the humans out there, just trying to get by in the world, trying to not fall victim of the scarcity bias, have you got any suggestions?

Mel (19:09):

Yeah, I think there's a suggestion, not by me, but there's a suggestion that actually, when we perceive there to be limited choice of something that that itself engenders a state of arousal in us. And we've talked before about how, when we experience a sort of a change to our physiological or emotional state, we're motivated to reduce it, right? We actually, even though it could be like an exciting thing, like there's a bit of a thrill of...oh my God, there's something...I don't know if I'm going to get it or not, but we can resolve it by purchasing the product, right?

Mel (19:37):

And I guess my question, or the question I want people to put to themselves is, do you actually want this item or are you just sort of falling victim to this thrill, right? Of...I don't want to not have it. Cause I think there's a big difference between wanting something and then wanting to make sure that you don't not have it. And I think it's important that if you want something...hey, go for it. If you want something and you can afford it and it's going to help you, then it's a good decision, right? But if you're wanting, just not to be sour from something, then that's, I guess a point where you might be more likely to make a decision that we would call a bad decision.

Dan (20:15):

No, I think anybody that's been in a nightclub past 2:30 in the morning is familiar with that equation of choices going down, arousal levels going up and asking yourself whether you really want something or if you just don't want to miss out, is a really worthwhile thing to challenge yourself with. And that's probably a good time to end this episode. What do you think?

Mel (20:34):

It's good for me. I don't know what you're talking about. I was never in that position. Always had an abundance of choices. At least I like to fool myself into thinking I did.

Dan (20:41):

Or maybe we won't end, do you want to talk a bit more about that Doctor Mel?

Mel (20:43):

No, no, no. I think we're good.

Dan (20:46):

All right, let's put a ribbon on it. Scarcity bias, what's that textbook definition?

Mel (20:51):

The scarcity bias is our tendency to value something more simply because there's less of it or we perceive that there's less of it available.

Dan (20:58):

Exactly. And it doesn't just work for cookies and key rings, it pretty much works for everything, right? So I think the opportunity for brands here is to do this, number one through quantity. So limited runs or capped availability of particular ranges to do it through time. So making offers available, but having definitive cutoff points after which point they're no longer available and thinking about access. So giving people the ability to consume or interact with some part of what you offer, but cutting it off there unless they become paying subscribers. And for peeps?

Mel (21:29):

And for peeps, I guess just recognize whether you actually want the product or whether you jus...whether it's just FOMO and you're just falling victim to wanting to make sure that you don't miss out.

Dan (21:38):

Yeah, might be some other way to get your endorphins. Just go for a run.

Mel (21:41):

Go for a run. Yeah, sure, [inaudible 00:21:43] go for coffee with a friend. You can probably have the...probably be just as exciting as actually buying the product and you don't have to probably wait in line for the good outside of Nike store for three days.

Dan (21:53):

Go for a run, have a coffee and if you still want it, then you can buy it if it's still available.

Mel (21:58):

[inaudible 00:21:58]

Dan (21:58):

All right, cool. That was fun. You can find us on the internet, I'm @danmonheit.

Mel (22:04):

I'm @drmelw.

Dan (22:05):

We'll be back with another episode, maybe, they're pretty limited.

Mel (22:10):

This could be the last one.

Dan (22:11):

Could be, who knows, tell a friend, get it quick, catch you next time.