What role does scarcity play? - Chapter 7

What are some examples of how the principle of scarcity is used in everyday life?

A personal story of the author is a good example of the principle of scarcity. When he learned that a Mormon temple in his hometown was open for public visitors for only a few days, he felt the immediate need to participate in a guided tour, even though he never cared for the Mormon religion or for church architecture in general. The crucial point was that normally non-Mormons are denied access to the temples and even members of the group are not allowed to see the very inner part of the church unless they are in a very high clerical position. This introduces the effect that scarcity has on our behavior and our perception. Something that was of no particular value in the beginning became highly desirable when its accessibility was of short durability. Another example is an experiment from the University of Florida, where students had to rate the quality of their cafeteria. Similar to findings from other university cafeterias, Florida State students were unsatisfied with the quality of the food. However, when they had to rate again after being told that they could not eat at the cafeteria for two weeks due to a fire, evaluations significantly changed for the better, even though the food had not changed.

This way of assessing the quality of something is the most common rule applied by collectors: the rarer an item is, the higher its value. This is especially true for so called “precious mistakes”, items with flaws that therefore deviate from the norm but at the same time hold extremely high value for collectors (e.g. blurred stamps or double-struck coins). The power of scarcity can not only be found in these rather materialistic settings, but also in social interactions. The author provides an example of an incoming phone call during a very interesting face-to-face conversation. He states that he will be very likely to disrupt the talk, no matter how important, to take the call since there is the possibility that the caller might not phone back and therefore the information he or she could provide will be lost. This anecdote leads to the finding that people are generally more motivated by potential losses than potential gains. For example, in the context of a romantic relationship or grade point averages, most college students have been shown to recall stronger emotions when imagining losses than gains. This has further implications on other areas of society. Take our health system, which covers a highly important aspect of our lives: well being. Advertisements for breast-cancer self-examinations have been shown to be more effective when the incorporated potential losses (i.e. of health) than gains. This fact seems to stem from our brain structure and its mechanisms, since it is more difficult to disturb decision-making processes in the context of losses as opposed to those involving gains.

Another way of applying the power of scarcity in a professional setting uses limited numbers. Frequently, sales managers will inform potential customers of limited supplies for one product and that a constant availability cannot be guaranteed. A similar technique focuses more on the temporal availability of an item, rather than its restricted quantity. This deadline technique limits access to the product or service for an officially specified time. This approach can even elicit interest in people who never experienced the need to buy the item in question before. It can be used in a more extreme way that is often applied by face-to-face salespeople. They use the time limit “right now”, letting the potential customer know that after the very moment of their conversation, future possibilities to acquire the product or service becomes more unlikely or that the (good) deal they offer is only valid now. The effect of this tactic is that potential clients are deprived of the time to engage in a conscious, efficient analysis of the deal’s pros and cons.

What is the Principle of psychological reactance?

The scarcity principle draws its power from two sources: first, like the other principles discussed in the book, it offers shortcuts. Generally the assumption that what is rare is better holds true; it is an effective way to assess the quality of something we are unfamiliar with. For the second source, psychological reactance theory (developed by Jack Brehm) comes into play. It states that whenever people are deprived of their freedom (i.e. to make free-choices), they will react against this by wanting this freedom more than before. Since scarcity puts a limit to our freedom to choose what we want, we will respond with an increased need for the choice. Researchers subsequently tried to determine the age at which people develop the drive to react against limitations to freedom. It has been shown that children at the age of two first engage in reactive behavior. This is why many parents describe this period as the “terrible twos”. It is marked by relatively more contrary behavior and resistance to outside pressure (especially from their parents). One study had a sample of two year old boys placed in a room with two toys. In one condition, both toys were equally accessible, only one was placed behind a one foot high piece of Plexiglas (still easily touchable by a child of that age). In the other condition, the Plexiglas was two feet high and it was therefore not possible to reach the toy without crawling behind the glass. The results showed that both toys were equally quickly touched in the first condition. However, in the second, restricted design, the boys crawled behind the barrier and touched the less easily reachable toy three times more quickly than the other. The reason for the development of such reactance at the age of two has been related to child development. This specific age marks the time when babies first recognize themselves as individuals, resulting into a basic concept of autonomy. In the light of this approach, reactance seems like a mean to gather information. Children are testing their limitations concerning freedom.

Another time in a person’s life that is characterized by rebellion against restriction of freedom is the teenage years. Similar to the terrible twos, teenagers develop and increased sense of individuality and autonomy. Traditional authority on the part of the parents is therefore often counterproductive. One intriguing effect that can result is termed “Romeo and Juliet effect”. It refers to the impact of parental interventions on romantic relationships and the resulting psychological reactance in their teenage children. One study conducted by Driscoll, Davis, & Lipetz (1972) has shown that teenage couples react to their parents interference in their relationship in an interesting way: the couples that suffered from their parents missing acceptance of their relationship reported some problems more often than other couples (e.g. more critical view of the partner, report of more negative behaviors in the partner). However, like Romeo and Juliet, these couples also reported more love for each other and a higher desire to get married. Even more surprising, when during the progression of the study the parents’ interference became more intense, the reported love increased as well. Similarly, when parental interference was reduced, so did the feelings for each other.

The previous examples show extreme instances in our development of reactive feelings and behaviors. As adults, these feelings tend to be quieter and covered. Take for example the case of the now well-known town of Kennesaw in Georgia. It became famous for one specific law that was enacted by officials without considering much of the inhabitants’ opinions. It required every adult to own a gun and ammunition. Being a clear restriction to the peoples’ freedom to choose whether they wanted to own a weapon or not, psychological reactance was expected by experts to be very likely. Surprisingly, gun sales rose to an all-time high, leading defenders of psychological reactance theory to investigate deeper.

The quickly discovered the reason for the increase in sales: it was not the population of Kennesaw who obeyed the newly enacted law but rather people from other cities who – attracted by the publicity – bought gun after gun in the local shops. Similar effects were observed when officials of Dade County, Miami, banned the use of phosphates (i.e. certain laundry or cleaning products etc.). As it was predicted by the theory, inhabitants reacted to the limitation of their freedom, in this case by smuggling and hoarding (some people horded supplies that would last for 20 years). What is more and especially more interesting: the consumers perceived the phosphate products as better compared to people from counties in which phosphate was not banned, in terms of gentleness, efficacy, and even better to pour. This effect results from the fact that what we perceive is simply an increased desire to own these products. Unable to make sense of this, we ascribe more positive characteristics to those things we are deprived of.

Psychological reactance also extends to those areas that are less tangible: information for example. Censorship of certain information not only makes us want this information even more, it also leads to a more favorable position toward that information. When students were told that a speech opposing mixed (male/female) dorms was banned, they became more opposed to mixed dorms themselves, even without ever listening to the arguments. Certainly, this bears another dangerous possibility: shady political parties could for example use this effect for their advantage, by making sure their unpopular positions and speeches are banned and then informing the public about this censorship. The same accounts for overly prudent parents who try to ban sexually oriented material from schoolbooks or hygiene texts. They should think twice about their resolute approach, since it will likely lead their children to want the material even more. To provide evidence for this assumption, researchers had students read ads for a book, either containing the information that it was age restricted (age 21) or no information at all. As expected, the restriction led the students to rate the book as more desirable.

Official censorship is most often encountered in the context of banned political or sexual material. However, another situation can be described with this term. It involves the context of jury trials. In some cases, a piece of evidence is presented to the jury and later on decided to violate certain requirements and is therefore officially banned by the judge, who in this case acts as some kind of censor. As a result, the jury is asked (and actually often not allowed) not to include this piece of evidence in their evaluation when rendering their judgment. Yet, most jury members will feel a right to consider every piece of information, especially since it has already been presented to them. Consequently, jurors often use exactly this piece of evidence to a greater extent (Liebermann & Arndt, 2000).

Another theory that was born out of the principle of psychological reactance is commodity theory (developed by Brock and Fromkin). It states that information that is more exclusive because it can only be retrieved from one specific source for example, is rated as more persuasive. A student of the author conducted an experiment that supported this theory. Coincidentally, this student was already a businessman with his own company that imported meat and sold it to supermarkets and other stores. The general design of the study involved the calling of the customers to ask for purchases. This was a usual procedure. However, the calls slightly differed in each condition. In the first one, the salesperson would merely ask for a purchase. In the second condition, the prospective customers were again asked for a purchase but were also informed that meat would be scarce in the following months. Finally, the third group was also informed about the supply shortfall but received the additional remark that this information was not available to everyone since the company’s contacts were exclusive. When sales were compared, the first condition led to the least revenue; in the second condition, sales more than doubled; in the third condition, six times more orders were placed than in the first.

What are the optimal conditions for the scarcity principle?

As it was shown with almost every other previously discussed principle, scarcity is more powerful in some situations than in others. To illustrate this, an experiment of Stephen Worchel and colleagues (1975) should be investigated. The setting resembled a consumer study in which participants were given a jar of cookies whose quality they had to rate. The conditions differed in the amount of cookies in the jar (i.e. two vs. ten). As the scarcity principle would predict, people that had to rate a cookie from a jar of two attested a better quality and higher desirability compared to those participants with a jar of ten. However, by slightly altering the procedure there was even more to learn from this experiment. Instead of being exposed to two cookies right from the beginning, subjects were first presented with a jar of ten cookies which was replaced with the jar containing only two shortly before they had to try them (new scarcity). Another control group was again exposed to two cookies right from the beginning (constant scarcity). Results showed that an even higher desire and quality rating resulted from the new scarcity.

These findings have been found to be applicable to more severe aspects of society: James C. Davies (1962, 1969) argued that revolutions are more likely to occur when a period of increased economic and social growth is followed by a slight decrease in these conditions. The American Revolution for example took place just after Britain wanted to cut the excessively high standards of living and low taxes of its colonists by increasing taxes. Davies was able to relate his theory to a variety of such situations (e.g. French, Russian, Egyptian revolutions, American Civil War, and black riots in the 1960s). For the same reason, parents who apply discipline inconsistently are likely to be faced with rebellious children. They will perceive even slight punishments as a deprivation of their established freedoms, since they are allowed to deviate in other situations.

Another factor that determines the effectiveness of the scarcity principle is competition. To examine this factor a consideration of two additional conditions in the cookie study is helpful. Some of the participants who first saw the full jar which was then replaced by the scarce variant were told that some cookies had to be distributed to another rater, whereas people in another condition received the information that there was an error and that they were supposed to have only two cookies right from the beginning. People in the first condition who experienced the loss as a result of social demand liked the pastry more than subjects in the second condition. This effect of competition as a powerful motivator is often exploited by advertisers (e.g. “Hurry before somebody else takes the product”) but also by people in a relationship to heat up the partners emotions by telling of (or inventing) a new admirer.

How powerful the combined effect of scarcity and rivalry is can be shown by the example of former vice president of American Broadcasting Company (ABC), Barry Diller. In 1973, it was the first time that networks could enter an open-bid auction to gain the rights for a film (The Poseidon Adventure) they could then air on their channels. Since it concerned the rights for only one motion picture, this resource was certainly scarce and once bought these rights would remain in the hands of the winning company for (probably almost) ever. Three networks competed in the auction and the obvious rivalry led Diller to bid 3.3 million dollar, even though very generous analyses done by his company expected a maximum revenue of 2 million dollar. The competition and scarcity obviously blurred Diller’s objectivity and afterwards he stated that ABC would never enter an auction situation again.

How can exploitation of the scarcity principle be prevented?

As it was already shown, scarcity tends to obscure our capacity to think logically. As a result, it is hard to counter, since thinking would be needed to engage in proper evaluations of the situation. To bypass this drawback, we should not focus on a cognitive and effortful approach but rather examine our feelings that are triggered by the effect of excitement that scarcity produces. This means that in a first step we should use this feeling of inexplicable arousal as a warning sign to calm down. In a next step, we should remind ourselves that often we desire something scarce just for the sake of possessing it, not because it has any specific value for us. Take the example of the author’s brother. To fund his college education he resold used cars. His most effective technique was to give each prospective customer the same time for an appointment to have a look at the car. Faced with this situation of rivalry, often the first potential buyer jumped at the purchase, reacting quickly due to his inability to think straight under such circumstances. Taking this example, our response in the second step (i.e. after we used the initial feeling of arousal to be alarmed) should be to ask ourselves if we want the car just to possess it or to actually drive it. In the first case we can simply proceed since objective consideration is not necessary. However, in the second case we should remember that the car functions equally well (or bad), whether it is scarce or not.