Scarcity heuristic

In human psychology, the scarcity heuristic is a mental shortcut that places a value on an item based on how easily it might be lost, especially to competitors.

The scarcity heuristic stems from the idea that the more difficult it is to acquire an item the more value that item has. In many situations we use an item’s availability, its perceived abundance, to quickly and accurately estimate quality and/or utility.^[1] In other situations, the scarcity heuristic can lead to systemic errors or cognitive bias.^[2]

Scarcity appears to have created a number of heuristics such as when price is used as a cue to the quality of products,^[3] as cue to the healthfulness of medical conditions,^[4] and as a cue to the sexual content of books when age restrictions are put in place.^[5] These heuristic judgments should increase the desirability of a stimulus to those who value the inferred attributes.^[6]

Context

Heuristics are strategies that use readily accessible (though loosely applicable) information for problem solving.^[7] We use heuristics to speed up our decision-making process when an exhaustive, deliberative process is perceived to be impractical or unnecessary. Thus heuristics are simple, efficient rules, which have developed through either evolutionary proclivities or past learning. While these “rules” work well in most circumstances, there are certain situations where they can lead to systemic errors or cognitive bias.^[8]

The scarcity heuristic is only one example of how mental “rules” can result in unintended bias in decision-making. Other heuristics and biases include the availability heuristic, survivorship bias, confirmation bias, and the self-attribution bias. Like the scarcity heuristic, all of these phenomena result from either evolutionary or past behavior patterns and can consistently lead to faulty decision-making in specific circumstances.

Scarcity variations

The scarcity heuristic does not only apply to a shortage in absolute resources. According to Robert Cialdini, author of Influence: Science and Practice, the scarcity heuristic leads to us to make biased decisions on a daily basis.^[9] It is particularly common to be biased by the scarcity heuristic when assessing four parameters: quantity, rarity, time, and censorship.

Quantity

The simplest manifestation of the scarcity heuristic is the fear of losing access to some resource resulting from the possession of a small or diminishing quantity of the asset. For example, your favorite shirt becomes more valuable when you know you cannot replace it. If you had ten shirts of the same style and color, losing one would likely be less distressful because you have several others to take its place.

Cialdini theorizes that it is in our nature to fight against losing freedom, pointing out that we value possessions in low quantities partly because as resources become less available they are more likely not to be available at all at some point in the future. If the option to use that resource disappears entirely, then options decrease and so does our freedom.

Cialdini draws his conclusion from psychological reactance theory, which states that whenever free choice is limited or threatened, the need to retain freedom makes us desire the object under threat more than if it was not in danger of being lost.^[10] In the context of the scarcity heuristic, this implies that when something threatens our prior access to a resource, we will react against that interference by trying to possess the resource with more vigor than before.

Rarity

Objects can increase in value if we feel that they have unique properties, or are exceptionally difficult to replicate. Collectors of rare baseball cards or stamps are simple examples of the principle of rarity.

Time

When time is scarce and information complex, people are prone to use heuristics in general.

When time is perceived to be short, politicians can exploit the scarcity heuristic. The Bush administration used a variation of this theme in justifying the rush to war in Iraq: "time is running out for Saddam and unless we stop him now he will use his WMD against us".

The Scarcity Rule is the sales tool that is most obvious to us when we see advertising terms including, “Sale ends June 30th”; “The First Hundred People Receive…”; “Limited Time Only”; “Offer Expires”.^[11]

Restriction and Censorship

According to Stephen Worchel, Susan Arnold, and Michael Baker, our reaction to censorship is to want the censored information more than before it was restricted as well perceive the censored message more favorably than before the ban. This research indicates that people not only want censored information more but have an increased susceptibility to the message of the censored material. Worschel, Arnold, and Baker came to this by testing students’ attitudes toward co-ed dormitories at the University of North Carolina. They found that when students were told that speech against the idea of co-ed dorms was banned, students saw co-ed dorms as less favorable than if the discourse about the dorms had remained open. Thus, even without having heard any argument against co-ed dormitories, students were more prone to being persuaded to be opposed simply as a reaction to the ban.^[12]

Another experiment at Purdue University divided students into two groups and gave them the same book. In one group the book was clearly labeled as “mature content” and was restricted for readers 21 and older while the other group's book had no such warning. When asked to indicate their feelings toward the literature the group with the warning demonstrated a higher desire to read the book and a stronger conviction that they would like the book than those without the warning.^[13]

Conditional Variations

Although the scarcity heuristic can always affect judgment and perception, certain situations exacerbate the effect. New scarcity and competition are common cases.

New Scarcity

New scarcity occurs when our irrational desire for limited resources increases when we move from a state of abundance to a state of scarcity.^[14] This is in line with psychological reactance theory, which states that a person will react strongly when they perceive that their options are likely to be lessened in the future.

Worschel, Lee, and Adewole demonstrated this principle with a simple experiment. They divided people into two groups, giving one group a jar of ten cookies and another a jar with only two cookies. When asked to rate the quality of the cookie the group with two, in line with the scarcity heuristic, found the cookies more desirable. The researchers then added a new element. Some participants were first given a jar of ten cookies, but before participants could sample the cookie, experimenters removed 8 cookies so that there were again only two. The group first having ten but then were reduced to two, rated the cookies more desirable than both of the other groups.^[15]

Quantifying Value in Scarce and Competitive Situations

Mittoni and Savadori^[16] created an experiment where the same good was abundant in one condition but scarce in another. The scarcity condition involved a partner/competitor to create scarcity, while the abundant condition did not. Results showed that more participants chose a good when it was scarce than when it was abundant, for two out of four sets of items (ballpoints, snacks, pencils, and key rings).

The experiment then created a WTA (willingness to accept) elicitation procedure that created subjective values for goods. Results showed the scarce good receiving a higher WTA price by participants choosing it, than by those who did not, compared to the WTA of the abundant good, despite the fact that both types of participants assigned a lower market price to the scarce good, as compared to the abundant one.

Other Applications

This idea could easily by applied to other fields. In 1969, James C. Davis postulated that revolutions are most likely to occur during periods of improving economic and social conditions that are immediately followed by a short and sharp reversal in that trend.^[17] Therefore, it is not the consistently downtrodden, those in a state of constant scarcity, who revolt but rather those who experience new scarcity that are most likely to feel a desire of sufficient intensity to incite action.

Competition

In situations when others are directly vying for scarce resources, the value we assign to objects is further inflated. Advertisers commonly take advantage of scarcity heuristics by marketing products as “hot items” or by telling customers that certain goods will sell out quickly.

Worschel, Lee, and Adewole also examined the competition bias in their cookie experiment, taking the group that had experienced new scarcity, going from ten to two cookies, and telling half of them that the reason they were losing cookies is because there was high demand for cookies from other participants taking the test. They then told the other half that it was just because a mistake had been made. It was found that the half we were told that they were having their cookie stock reduced due to social demand rated the cookies higher than those who were told it was only due to an error.^[18]

In 1983, Coleco Industries marketed a soft-sculpted doll that had exaggerated neonatal features and came with "adoption papers". Demand for these dolls exceeded expectations, and spot shortages began to occur shortly after their introduction to the market. This scarcity fueled demand even more and created what became known as the Cabbage Patch panic (Langway, Hughey, McAlevey, Wang, & Conant, 1983). Customers scratched, choked, pushed, and fought one another in an attempt to get the dolls. Several stores were wrecked during these riots, so many stores began requiring people to wait in line (for as long as 14 hours) in order to obtain one of the dolls. A secondary market quickly developed where sellers were receiving up to $150 per doll. Even at these prices, the dolls were so difficult to obtain that one Kansas City postman flew to London to get one for his daughter.^[6][19]

References

1. Lynn M., (1989), Scarcity Effect on Value: Mediated by Assumed Expensiveness, Journal of Economic Psychology vol. 10, 257-274
2. Gigerenzer, Gerd (1991). "How to Make Cognitive Illusions Disappear: Beyond “Heuristics and Biases”". European Review of Social Psychology 2: 83-115. Retrieved 14 October 2012.
3. (Rao & Monroe, 1989)
4. (Ditto & Jemmott, 1989)
5. (Pincus & Waters, 1976)
6. Lynn, Michael (March 1992). "The Psychology of Unavailability: Explaining Scarcity and Cost Effects on Value". Basic and Applied Social Psychology 13 (1): 3–7. doi:10.1207/s15324834basp1301_2.
7. Pearl, Judea (1985). Heuristics : intelligent search strategies for computer problem solving (Repr. with corr. ed.). Reading, Mass.: Addison-Wesley Pub. Co. p. vii. ISBN 978-0-201-05594-8.
8. Gigerenzer, Gerd (1991). "How to Make Cognitive Illusions Disappear: Beyond "Heuristics and Biases"" (PDF). European Review of Social Psychology (University of Salzburg, Austria) 2: 83–115. doi:10.1080/14792779143000033. CiteSeerX: 10.1.1.336.9826.
9. Cialdini, Robert B. (2001). Influence : science and practice (4. ed.). Boston [u.a.]: Allyn and Bacon. ISBN 9780321011473.
10. Cialdini, Robert B. (2001). Influence : science and practice (4. ed.). Boston [u.a.]: Allyn and Bacon. ISBN 9780321011473.
11. Scott Fenstermaker. "The Six Weapons of Influence – Part 6: "Scarcity"".
12. Worschel, Arnold, Baker p. 222
13. Zellinger D.A., Fromkin H.L., Speller D.E., & Kohn C.A., (1974), A Commodity Theory Analysis of the Effect of Age Restrictions on Pornographic Materials (Paper No. 440) Lafayette IN: Purdue University, Institute for Research in Behavioral, Economic and Management Science
14. Cialdini p. 47
15. Worhel S. Lee J. & Adewole A., (1975), Effect of Supply and Demand on Rating of Object Value, Journal of Personality and Social Psychology vol. 32, 906-914
16. Mittone, Luigi; Savadori, Lucia (July 2009). "The Scarcity Bias". Applied Psychology 58 (3): 453–468. doi:10.1111/j.1464-0597.2009.00401.x.
17. Cialdini p. 50
18. Worschel, Lee, Adewole p. 910
19. (Adler et al., 1983)