Economics is the science of management of rare things. It is, in general, any student learns in one of his first lessons of economics. How to manage at best of limited resources, whether raw materials, capital and the work force, to take the best advantage, for personal and community
Can sell to a traveller dehydrated in the desert water to 100 times its price without worry.
Everything is rare: natural resources, time and information. We must therefore make choices, perform calculations, which assumes a rational behavior at the origin of the notion of "homo oeconomicus".
But, more profoundly, this tension was created the concept of wealth in economics, purpose of this discipline Léon Walras defined as follows: "the set of all things, tangible and intangible; which are likely to have a price because they are rare, that is both useful and limited in quantity. The neoclassical authors show that market prices are not only indicators of scarcity but also, by the exercise of free trade, raising the level of life and relative abundance.
- 1 Scarcity and marginal utility, understand the rationale and approach
- 2 Cognitive bias, the price is an indicator of the quality
- 3 Scarcity is also an indicator of quality
- 4 How to inflate the quality of a product and its price?
- 5 Video
- 6 The effect of scarcity
- 7 Another assumption and explanation
- 8 Other notions
- 9 Sources
Scarcity and marginal utility, understand the rationale and approach
The origin of the link between price and rarity should be sought in the analysis made by the neo-classical authors of the usefulness, in particular marginal utility. The theory of marginal utility to be three authors (Jevons, Menger and Walras) is based on individual satisfaction provided by the latest consumed unit of a good. (the last glass of water so we've drank in 3 others). The first glass for example a high value and therefore a high marginal utility (because we have very thirst), the second less (thirst) the third even less (gourmandise) the fourth negative (disgust, overdose). The marginal utility of the first glass is so strong if one drank nothing, it drops as we consume our glasses.
This basic approach brings, in addition, the solution to the paradox of water and desert; water has a very high total utility but a very low marginal utility: the abundance of water made that the needs are met until satiety without it costs very little to anyone, the price is therefore relatively low.
Conversely, water in a desert with a huge marginal utility, because very rare and very useful, you can sell to a traveller dehydrating water for 100 times its price without worries.
Total utility is the wealth, is the essence of the value and provides a basis for the notion of wealth in economics.
Marginal utility and rarity (tension between supply and demand) are what determines market values and hence the price.
Cognitive bias, the price is an indicator of the quality
Scarcity is also an indicator of quality
More the object is rare in this video, while it is a common object (a biscuit, see your RADIUS junk in your races), plus it has been marked as qualitative. The request being dissatisfied resulting in frustration, so a high marginal utility, so the product has been perceived as having a high value. This explains why we want the rare biscuit and we find it best. We are also willing to pay more for this cookie because it is rare so desirable.
How to inflate the quality of a product and its price?
And this is a new episode of XP dealing with this time of the effect of scarcity. This episode had not been planned initially, since we are working on an episode of Horizon. But since we took the latter behind, we still wanted to offer content before the holidays, where this this episode under the sign of Christmas.
We hope that it will help you gain a better understanding of this scarcity effect, including the underlying mechanisms such as the reactance.
You can find more details on the experience and a new perspective of interpretation in this article.
The effect of scarcity
The experience described in this episode is not complicated, so far, different variables and conditions can make it opaque to the reading of the results. We have therefore translated table of the results of the experiment's Worchel, Lee, and Adewole that we propose to you here so that you can, if you want to examine the different results.
Some explanations are needed.
There you may be surprised that the scales are reversed. For example, question 1: "If you're given the opportunity, would you eat more of this consumer product?", you will notice that '1 = Yes, enormously", and"9 = not at all". Why such inversion? Although we have not found of formal responses in the article presenting the experience, we guess the practical interest common in this type of experiment in social psychology. Reverse scale makes it possible to avoid the automatic responses of the subject, a subject that needs to think more about the response that it will give. Many experiments in social psychology, in this type of inversion where sometimes the order of the possible responses to a questionnaire are mixed in order to avoid the automated systems.
In the table, you will notice also two options we have not developed in the episode: "high participation", "low participation". "High participation" corresponds to the situation where the subject is believed to pass a test of tasting among a large number of students; While the "low entry" corresponds to the situation where the subject is believed to pass a test of tasting among a small number of students. Both of these situations have been designed to determine if the size of the group to which believes belong the subject would be decisive. You will notice in the table of differences, but observed insofar as in "high participation" or "low participation" the effect of scarcity is also effective (by comparing the abundance and scarcity requirements).
For this video, in order not to complicate the presentation of the experience, we we contented ourselves to present the results of the "high participation".
Another assumption and explanation
We presented a few assumptions and explanations in this episode, but it is possible to deepen, we're going to do now.
When it comes to food, we tend to appreciate more a product in small quantities, from this same product in large quantities, simply because we take more time to appreciate it.
Imagine a chocolate bar. You are very hungry, and it offers a dozen of these chocolate bars. You will no doubt enjoy to eat, and you'll enjoy many, without necessarily taking your time, inclined to eat as possible. Ultimately, you could even to be disgusted. Put the same situation where you hungry, but if it offers a single bar, and nothing else. What will you do? You try to enjoy every bite, taking advantage as much as possible of the product. You will enjoy it probably more than if this bar was available in large quantities.
The last effect end of cake.
Found this in some restaurants, particularly the gourmet restaurants. Some dishes offer a small amount of preparation, and regardless of the talent of the chef, the low quantity participates in the appreciation of the dish.
The effect of scarcity can occur in many contexts, we leave you to consciousness (if not already done) in your own environment and daily life.
The bottle of water in the desert I told you!
To learn about the concepts discussed in this episode, here are a few articles and content that we have already developed on these issues.
- The effect 'reverse' scarcity exists: is mass effect (this technique takes different names) products are put in quantity to make believe to an accessibility of the price, of "cheap" or bargain instead, to from false storage, particularly in gondola. Often these are expensive brands that are made in batch, without particular promotion. We in have an illustration in this article on manipulations at the supermarket.
- the reactance (article): it is a phenomenon which occurs in trade issues, but which is also exploited in politics. Notion bring also the Streisand effect.
- the commitment. Is a primordial notion to understand to grasp modern manipulation tactics, it is a very broad field of experiments and studies. We talked in an article with an example of Idclic in Orange and we were able to describe more on this notion in human formatted; Note that there are all the other concepts also.
- Conformism: there's not a conformism is not inherently bad or good, even if sometimes he puts us in error. Thus the "sheep" are not necessarily idiots, so this is an error of judgement to accuse the conformism of the people: what is important to observe that is the situation and its determinants.
It was explained that in this article and in this video:
- Worchel, Stephen; Lee, Jerry; Adewole, Akanbi "Effects of supply and demand on ratings of value object". Journal of Personality and Social Psychology, Vol 32 (5), Nov. 1975, 906-914.
- 100 small experiments in psychology of the consumer: to better understand how it influences you Nicolas Guéguen, paperback – June 23, 2005.
- Influence and manipulation: understand and control mechanisms and techniques of persuasion
Robert Cialdini, 2004
- http://hacking-social.com/2015/12/22/XP-horizon-5-la-quantite-fait-Elle-LA-QUALITE/, I highly recommend this blog