The Scarcity Effect and How It Influences Our Choices

Hi everyone, welcome back! I know it’s been a while since my last post. I’ve been busy with university applications and preparing for my mock exams. Now that I’m back, I’m excited to dive into more fascinating behavioural economics topics. Let’s get into it!

Have you ever been rushing to buy something because a website told you there were only “2 left in stock”? Or maybe you’ve hesitated to book a holiday, only to come back later and see “5 other people are viewing this right now”? This psychological tactic is called the scarcity effect, and it plays a massive role in shaping our decisions, often without us even realising it.

So, what is the scarcity effect? Essentially, it’s a cognitive bias where we place a higher value on something perceived as limited or rare. It’s rooted in our evolutionary instincts—when resources were scarce, prioritising them ensured survival. But in today’s modern world, this instinct often leads us to overvalue things we don’t necessarily need. Scarcity creates a sense of urgency, making us feel like we might miss out if we don’t act quickly. And let’s be honest, none of us like missing out!

A classic example of the scarcity effect in action is Black Friday sales. Retailers are masters at creating the illusion of limited supply to drive demand. Words like “limited time offer” or “while supplies last” trigger the scarcity effect in consumers, pushing them to make impulsive decisions. Have you ever bought something on sale just because it seemed like a great deal, only to later realise you didn’t even need it? That’s the scarcity effect at work.

But it’s not just sales, the scarcity effect is everywhere. Take social media platforms, for example. Apps like Instagram and Snapchat capitalise on our fear of missing out (FOMO) using features like disappearing stories or time-sensitive content. This scarcity of availability drives us to check our phones constantly, ensuring we stay hooked.

Another area where scarcity plays a significant role is in the luxury goods market. Brands like Rolex and Hermès intentionally limit their supply to maintain an air of exclusivity. The idea that “not everyone can have this” makes these items even more desirable. Even if a more affordable alternative exists, the perceived rarity of these luxury items often makes people willing to pay a premium.

The scarcity effect isn’t just about products; it also influences our time and attention. Think about deadlines. When you have a lot of time to complete a task, you might procrastinate. But as the deadline approaches, the scarcity of time pushes you to act. This is why some people claim to work best under pressure. The ticking clock creates a sense of urgency, making every minute feel more valuable.

While the scarcity effect can sometimes motivate us to take necessary action, it can also lead to poor decision-making. For example, during the early days of the COVID-19 pandemic, we saw widespread panic buying of essentials like toilet paper and hand sanitiser. Even though there wasn’t a real shortage, the perception of scarcity caused people to hoard these items, creating actual supply chain issues.

So, how can we avoid falling victim to the scarcity effect? The first step is awareness. Recognising when scarcity is used as a marketing tactic can help you pause and evaluate whether you truly need something. Ask yourself: Am I buying this because I genuinely want or need it, or am I being influenced by the fear of missing out?

Another strategy is to set clear priorities. When you know what’s important to you, it becomes easier to ignore unnecessary distractions. For instance, if you’re saving for a big purchase like a car or a holiday, remind yourself of your long-term goals whenever you’re tempted by a “limited-time offer.”

Finally, practice mindfulness. Before making a decision, take a moment to step back and assess the situation. Sometimes, just giving yourself a bit of time to think can help you make a more rational choice.

That’s it for today’s entry! The scarcity effect is a fascinating example of how behavioural economics can influence our daily lives in ways we don’t always notice. Have you ever been influenced by the scarcity effect? Share your experiences in the comments, I’d love to hear them. See you in the next entry!