Do you think for yourself?
If you’re like most, you probably answered yes to this question.
However, there are many biases which shape our thinking, scarcity being one of them. Scarcity bias is a cognitive bias that impacts our decision making. It helps us make decisions quickly but also leads to irrational decisions which are detrimental to our development.
In this post, you’ll learn what scarcity bias is and how it impacts your decision making. You’ll also get an insight into how you can reduce the influence it has on you.
Scarcity is when something has limited availability. This is usually a product or a service. Scarcity bias, also called the scarcity heuristic, is the tendency that we as humans have to perceive these scarce things as more valuable than things that are plentiful.
Scarcity in economics is almost identical to scarcity in social psychology. The implementation is just a little different.
Scarcity bias often leads to poor judgement and decisions becoming skewed with bias. This causes harm in our daily life and causes us to take actions that we otherwise would not. It also leaves us vulnerable to manipulation and people trying to influence a situation.
Maybe you don’t think for yourself as much as you first thought…
Scarcity bias is an easy concept to grasp, so I won’t make the story too long in this post. Try to spot the instances where scarcity bias plays a role. Think about how scarcity impacts your own life based on the examples in the story.
This short story is about Scott.
Scott is a little impulsive
and loves to procrastinate more than
he loves to complete his work.
While browsing the internet looking for
a new calendar, he came across
a new gaming site that had just launched.
They sold games and everything you need to go with them.
Luckily for Scott, they had an opening week sale that was still in effect. Unfortunately, he only had another 30 minutes until the sale would end. He rushed to find some games he was into and went to the checkout.
Just in time!
Scott had purchased
3 different games. Two were driving games, he
loved them. The other was a first-person shooter,
which isn’t a game he usually goes for.
It didn’t even seem that good…
After some more procrastinating, he started his work. There are only two weeks left before the deadline he’d set with a new client of his.
Then, as if it was destined not to be, his phone rang.
It was Susan!
She happened to be in the area and wondered if he could go out for drinks later.
Susan was never in town, let alone willing to meet up!
Scott postponed the project he was working on till tomorrow and headed out for drinks with Susan.
In this story, you see instances of scarcity both in economic and psychological terms. The first example is the sale the new site had.
The sale was ending and there was no way of knowing when there would be another sale. This is where the scarcity kicked in. Scarcity drove Scott to make quick decisions without thoroughly thinking them through.
This results in him paying for a game that he didn’t like.
This may be something you can relate to with sales and discounts.
The second instance of scarcity was a little different.
Susan wasn’t in town often and rarely wanted to hang out with Scott. This results in a scarcity bias towards going for drinks with Susan instead of completing his work for that day.
This last choice could be down to a lot of other factors too. However, for the example’s sake, it’s due to scarcity bias!
One factor that influences the strength of scarcity bias is how recent the scarcity occurred.
Is scarcity new? Then scarcity bias will be stronger than if the scarcity isn’t as fresh.
Multiple experiments show that when there is a new occurrence of scarcity, scarcity bias is much more potent.
One experiment clearly shows the effect of new scarcity. Multiple test groups took part in this experiment. The first received 10 cookies, and each of them was told to rate the quality of the cookie.
The second group each received only two.
When cookies were scarce, they perceived them as better or “more valuable”. All the cookies were exactly the same, so there was no difference in the actual quality of the cookie.
However, there was a twist.
Another test group received 10 cookies, but 8 were taken away before they rated their quality.
This test group placed an even higher value on the cookies than the group that had always suffered from “cookie-scarcity”.
This may seem like pointless information, but its implications are bigger than you might think.
Subtract cookies for a product, a person’s availability or some sort of opportunity and the impact it can have on your life is huge!
Where does it come from?
It’s thought most cognitive biases stem from our past. Modern humans have not been around long enough to partake in all too much evolution. (We’ve written a post on where cognitive biases come from here!)
In the past, when things like water or food were scarce, placing more importance on this resource aided our survival.
Scarcity heuristic is a decision making shortcut. Is food scarce, but is there a river with fresh water nearby? Then food, the scarce resource, gets all the focus.
Even in modern times, we make decisions a lot easier using scarcity. The problem is that important decisions now aren’t the same as they were when we were living in the wild.
That there’s only one more house available in the city you want to move to doesn’t automatically mean you should sell out an extra $100.000.
Our knowledge economy requires a different form of decision making that doesn’t come naturally to us.
Scarcity in marketing
Scarcity is used in marketing to get a potential customer to take action. This action can be to subscribe to their YouTube channel, all the way to you purchasing a $2,000 washing machine.
Scarcity is increased by adding an expiration date to an offer. People then feel the need to act on it. If you don’t know when there will be another offer or which products will be on offer, then the offers currently available are scarce.
(This example also has a lot to do with uncertainty bias and loss aversion, but that’s not what this article is about!)
Most supermarkets continuously have things on offer. This means it doesn’t matter all too much what’s on offer on any given week.
However, when our favourite chocolate bar is on offer, we just might buy 15 instead of one.
Another way that marketers use scarcity is by adding a limit to the number of products available. These limits, real or fake, get more people to purchase the product.
“Only 500 available, get yours now!”
You get the point.
Ticking clocks, limited numbers and high prices all make us think something is more valuable than it is.
Scarcity in everyday life
The influence that scarcity bias has on us in everyday life is often a lot more subtle.
When you don’t do something often you value it more than when you do it often.
However, “often” is subjective.
If you feel as though you don’t do something often enough, that alone can trigger scarcity bias in you.
Say you adore horse riding. If you go 5 times per week, then this isn’t considered as something you “scarcely do” in most cases.
However, if you just can’t get enough of it, you may feel that 5 times is not enough. If you feel as though your time riding your horse is a scarce resource, then you value it more than resources that are less scarce in your mind.
This could lead to you bailing on your friends, or worse, bailing on your course work!
The fact that you feel scarcity can drive you to make the wrong decisions. The reason for this is that you aren’t thinking rationally about the situation anymore.
You place more emotional/perceived value on certain choices. This prevents you from making a rational decision.
This is why scarcity bias’s effects run much deeper than you think.
It influences your decisions as to which college you go to, what things you buy and even things like the foods you eat!
Dealing with scarcity bias
Here at Minds Bias, we’re passionate about cognitive biases and leveraging them to create the life you want. By loosening their grip on you, and leveraging them in your favor wherever possible, you can improve your chances of making the changes you want to make.
Scarcity bias is one of these biases!
As with any cognitive biases, raising your awareness helps you to combat its effects on you. By learning about scarcity bias and its implications, you’re already one step ahead.
If you look inwards more and start reflecting on how scarcity bias impacts you, you start catching yourself falling into its trap before you act on decisions.
You then have the chance to rethink things and make a better judgment call.
Think about how scarce a resource actually is. Is it scarce or do you just value it more and therefor perceive it as scarce?
Is a resource scarce because of your own doing?
For example, take the story in this post.
Susan couldn’t hang out often and wasn’t in town much. Your friend might be the same, but how many times have you tried to plan something with them?
Often times, we don’t see the reason for the scarcity. If you call her more and travel to see her regularly, you often find that something isn’t as scarce as you think.
The same goes for sales, deals and offers.
The moment you catch yourself and take a step back, you have the opportunity to think rationally about the situation.
You’ll often find that a one-off situation isn’t worth sacrificing your work or goals for.
The same goes for special offers in the grocery store or online.
Tip: Be especially aware when making rushed decisions. Pretty much all cognitive biases and mental heuristics are prone to taking over when you’re being rushed!
The extent to which you can use scarcity in your favor is limited to your ability to change your beliefs.
(We’re doing a post about changing your beliefs soon!)
Sure, you can use it to influence other people, but that’s not what we’re talking about here. The examples we’ve already covered give you enough ideas about how you can use scarcity to do that.
That being said, this part is about influencing yourself.
If you believe something is scarce, you value it more than other things.
So, if you believe that things that support your goals are scarce, you will value them more highly than other things.
Take the example of trying to free up more of your time to spend with your family.
It can be hard to do this since you have to leave money lying on the table. But, if you believe that time is scarcer than money (news flash, IT IS!), you’ll find the process a lot easier.
This belief can also help you raise the price you charge per hour since you value your time at a higher price.
This is just a small example, so let’s try something much more challenging.
You want to quit smoking. There are countless biases you can use to help quit smoking. For this example, though, we’ll only focus on scarcity.
Your time here on earth is scarce. Quick dopamine rushes are abundant; smoking is just another way of providing us with it. Almost everything in our daily life provides us with a dopamine rush nowadays.
Why do so many people quit smoking when they have a health scare?
They realize their time here on earth is limited. It can be taken away at any moment; it’s a game of chance.
Smoking only increases the likelihood that you exit this world prematurely.
The moment you see how scarce time is, you start to use scarcity bias in your favor. Again, more on changing your beliefs in another post.
If you’re ever faced with scarcity bias, at least now you know what it is. We’ve also gone over how you can loosen the grip it has on us. Next time you feel a pressure to take action on something, stop and think about whether your decision is the right one.
Scarcity bias in goods: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1464-0597.2009.00401.x
Scarcity + new scarcity: https://psycnet.apa.org/record/1976-03817-001