21 November 2021

He who controls the spice, controls the universe

  • Baron Harkonnen, character in “Dune”

This is part 5 of the series on “How to be a game changer”. You can find the last four here: 1, 2, 3, 4. Today we continue with examples of negative games you don’t want to play - and we’ll discuss artificial scarcity.

Let’s start with my dog, Euler. Originally he didn’t always want to eat his dog food kibble. So me and my partner started mixing in pieces of meat, or sauce - something to add more real flavor. Euler would then devour it. He wasn’t sick - he was just a picky eater. We were glad we could help him get the nutrition he needs, and enjoy the flavor, but then we realized we were having a hard time attracting his attention, he became bratty, and treats lost their persuasion power. What happened was that Euler expected something better than the treats - meat in his dog food - for granted. We then stopped flavoring his kibble, and at first he didn’t eat much again. But a stomach is a powerful motivator and he of course got back to eating. Not only that, but now he was a lot more interested in treats in other situations, which helped us teach him other behaviors and distract him when others are around.

good boy bad boy

We definitely could afford to put a little bit of meat in his food every meal, heated on the microwave so the juices flavor the dogfood. But we introduced an artificial scarcity for him, and as a result his behavior improved. We didn’t even use the words artificial scarcity when discussing this policy - we just reasoned about the behavior he would exhibit with or without the extra meat in his food.

So what really is scarcity, and when is it artificial? And how do you escape the artificial scarcity? Scarcity has a simple meaning - some resource is only available in small quantities - fewer than people want. Gold is somewhat scarce on Earth, as we tend to want a lot more gold than we have on Earth, but on a lot of asteroids it may be abundant. When we can mine these asteroids, gold will no longer be scarce for us.

When something is scarce and people want it, it becomes valuable. And this is the dynamic which causes artificial scarcity - when someone wants an item to be valuable, if they can make this item appear scarce, it will be valuable. They can then sell that item for a large profit, and incentivize behavior in others who want that item. For example, seeing a picture of Mona Lisa is not scarce, as you can just google it, but seeing the original in the Louvre in Paris is scarce.

Ultimately, artificial scarcity is about control. There is no need for a conspiracy here, as those with the means to control scarcity will simply do so to maximize their wellbeing, profitability, and power.

The way to exit scarcity is being truthful to yourself what you truly want inside, and not what other people have made you to believe you want. One way to exit scarcity is to not be swung by hype. There was no scarcity of smart phones in 1920, as nobody wanted them, but there was scarcity in 2007 because more people wanted one than there were smartphones. For the first few years Apple made the new model of iPhone scarce by adding some feature which wasn’t available on the old phones. But today they haven’t innovated as much and people are not as hyped up on getting the newest iPhone.

Another way is to not buy what is artificially scarce, and adopt a mindset of abundance. Realize that FOMO is just visibility bias, the things that we crave, we crave not because we really need them and they are scarce, but because we see them more often. Monkey see, monkey want. But we can notice that monkey in our mind and kindly tell it about all the other things it doesn’t see. See, the monkey’s got the steering wheel, but we can influence it ourselves, similar to how our environment influence it. We can tell the monkey about the actual abundance available around us. Materially, humanity is the most advanced it has ever been, but we still often look at the world through artificial scarcity glasses.

fighting vs growing

Today California, and especially the Bay Area has artificial scarcity of housing, which creates high real estate and rent prices, and exacerbates homelessness. Buying overpriced housing would mean giving in to the artificial scarcity narrative. We have the technological and economic power to make this area a lot more welcoming and affordable, but that means people who recently bought houses would experience a big loss in paper value. One way to exit is to not buy, because if you buy, one day the artificial scarcity will meet reality, one way or another, and someone will be the “biggest fool”, who bought an ultra expensive house, but lost all paper value. And that reality check might be sooner than you expect - Silicon Valley is no longer the only hub for high tech development, and a lot of the demand for its scarce housing may be redirected to other locations. If you have to be there - rent. That way you’re still playing an artificial scarcity game, but at least the stakes are much lower.

In a sense, Bay Area homeownership is a proxy for status today. And status is another type of artificial scarcity, but it is so important that it deserves its own article. We’ll discuss status in the next week’s essay.

One short post per week, discussing actionable mental models. Join a community of readers, who receive these posts over email.