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Scarcity Bias

Not long ago I consulted with an old friend on the best strategy to pay off the mountain of debts I had just acquired, which I need for payment of a piece of land I’m trying to buy. Because he needed to evaluate based on hard data, I conceded to giving him all my numbers.

He was stunned.

My debt service ratio was way higher than what most banks would recommend or require for approval of credit, not to mention that my emergency fund was in a pretty ugly shape. He asked what struck me so bad in the head that I had the audacity to proceed with my purchase.

I explained to him that I’ve been searching for years, and I was stuck on another island for too long that even when the right offer popped up I was unable to seize it because of how long it would take and how expensive it would be to immediately close the deal. Now, I’m in a very good position, both geographically and mentally, to seize a deal. Not so much so financially, and this is what raised his flags.

This, my dear friends, is what he called the scarcity bias.

I was too happy to finally find a piece of property that is very appealing, very strategic, and frankly quite a bargain. I was willing to look the other way when hard data suggests that I do not have the financial capability to generate that certain amount of money within that certain amount of time. I was even willing to overlook some of the obvious drawbacks of the property.

This is what he compared my situation with: You’re a grumpy old single person who hasn’t had a girlfriend in ages, has failed at dozens of attempts at getting a girlfriend, and you’re in a community where people show off their spouses and how happy they are and look down on you for being single. Now, this girl comes up to you and shows a genuine interest.

You’d feel like she’s the one, the angel from heaven who descended upon the mere mortal that is you.

After a while you’d realize that she’s not that divine. Not at all. Eventually the entirety of her dark side comes into view, but you choose to close your eyes, because you don’t want to wake up to the reality that she is not the one who can make you happy.

That’s quite a dramatic analogy, but it kinda hits the spot.

So there you have it, a random post about a curious little thing called Scarcity Bias.



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