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Why Scarcity Creates Value

Why are goods that seem scarce more valuable to us? Does context matter? Does our perceptive and social nature explain why?

Watch what happens around

Stand in the middle of a crowd and yawn. Watch what happens around you. Cough to draw a little attention to yourself and then look sharply to your left. Again watch what happens around you.

Even more telling, take 4 friends, go outside where there’s a busy street. All of you stop at the same time and look up to an empty window. What do you think will happen? Well, American social psychologist Stanley Milgram worked with his colleagues to test precisely what happened in this situation

He asked groups of research confederates to stop on a busy street and look up the building even though there was nothing there. This was a busy New York City street. He varied the size of the group, sometimes from one person to 2 or 3 up to actually 15 people.

The experimenters, they got to watch and they counted the percent of people walking by who also looked up at the building. When only 1 research confederate stopped and looked 40% of the people walking by looked, with 2 the percent went up to nearly 60%, beginning with 5 and going up in group size nearly 80% of the passersby looked.

Perceptive and social by nature

Human beings are perceptive and social by nature, so we’re constantly looking around and interpreting what those around us are doing often without even being aware that we are doing it.

We are also constantly trying to make sense of a confusing and uncertain world and we use the behavior of others as a frequent guide.

A yawn, for example, is quite contagious, scientists aren’t completely sure why but the evidence is clear upon seeing another person yawn you’re much more likely to yawn yourself. More often than not responses happen quickly and are not controlled by any deliberate thought or planning.

Yawning, looking up in the sky, blinking your eyes, folding your arms, people around us often influence our behavior outside of our awareness and we naturally and unthinkingly mimic what they do.

Of course, if you are aware that this happens you can better understand yourself and others and, in a moment of influence, use that knowledge to your advantage.

Scarcity, authority and social proof

So, in this article we will discuss the contextual cues to which people naturally respond. When present these cues dramatically affect how people are likely to be influenced.

And, for this, we are going to use the language crafted by Bob Cialdini, author of the best-selling book Influence: Science and Practice. Cialdini refers to these three cues as: scarcity, authority and social proof. Let’s discuss now scarcity.

In many situations people do not know the actual worth of an object or an action, so if you’re asked to purchase a brand-new smart phone with features unlike anything on any other phone on the market for $500 you would not immediately know whether the phone is actually worth $500.

Should you buy it? How do you figure out whether that’s a good deal one? Why that people do this is by looking at the context. How many of these phones are available? is there a competition among people for them? Is there a line forming?

If there are only a few phones and everyone seems to want one then the phone is scarce and the mental shortcut we all use is that scarce goods must be more valuable. So, if a particular context creates scarcity, it cues us into action.