14 October 2013

The 'Scarce' Behavior...

What is the impact of Scarcity in our lives?
I have often heard people say that if only the poor people could changed their behavior, learn to take responsibility, learn to work hard then they won't be poor any longer...
The problem is that scarcity causes its own behavioral patterns which often prevents people from transforming their lives.
Even after people come out of Scarcity, even after they become well-off, the behavior patterns induced by Scarcity tend to continue, thereby preventing people from enjoying a more fruitful, successful life. 
I read this good article somewhere where early childhood scarcity impacts people's behavior even after they turned the corner.
I was reminded of some of this while shopping at Hypercity Super Market at Inorbit Mall, Vashi, Navi Mumbai the other day. 
I did not grow up poor. My father used to work as an Electrical Engineer with a Cement manufacturing company. Since he has to bring up a family of 6 on a meagre monthly pay, there was scarcity all around as I was growing up. 
One of the recurrent themes in our lives was regular argument between my father and mother about Horlicks. "Why buy Horlicks?", my father will ask, "Why can't the kids just drink milk?"
The 'Scarce' word was so prevalent in those days. Money was Scarce, Jobs were scarce, opportunities were scarce...
Even ideas were scarce back in those days.
Currently I work as a senior executive in a manufacturing company in Mumbai. I relocated to Mumbai from Bangalore about a year back. I stay alone. Family stays in Bangalore, since my missus is working and my son is enjoying his school.
Since I dislike going to Super Market, every time I go there, mostly to buy vegetables, I dump whatever vegetables available pay and get out of that place ASAP.
I don't look at the prices of the vegetables, since the prices are in a range that I am comfortable with. 
All these changed recently. 
As you know, over the last few months, the prices of vegetables soared in India.  What used to cost 15 bucks previously is now costing 75 bucks. This phenomenon is not just for some vegetables, the inflation is across all the vegetables. 
Now when I go to the market, my purchase behavior has changed.
-- I go to market frequently
-- I buy 250 grams where I used to buy a kilogram
-- I look at the prices before I decide to buy a vegetable
-- I buy some vegetables more than others
-- I go to the dirtier local market more than I go to the swanky hypermarkets in the mall
If a temporary scarcity can impact my behavior thus, I can imagine what a permanent scarcity can affect the behavior of individuals
The most deleterious effect of scarcity in the behaviour of people is that it limits their dreams. If you refer to my point about buying 250 grams instead of one kilogram above, you can see what I mean. I have experience of purchasing one kilogram, so once this inflation settles down, I will go back to buying one kilogram again. However, maximum quantity that a person affected by permanent scarcity will buy is 250 Grams. He can't even dream of buying one Kg of vegetables on a regular basis. He doesn't even know the 'feel' of procuring One Kg of Vegetables.
A poor person almost always ends up seeing poverty all around, for them, poverty and scarcity are normal. They can't even imagine that they could lead a a more successful life. For an unemployed poor, getting a regular pay is sufficient. For daily labourer will be satisfied with a regular monthly paycheck...
You get the gist.
As I mentioned earlier, it is not just poor people who are affected by 'Scarcity' induced behaviour. Even a well off is impacted by this behaviour and this limits the person's potential for success and his ability to monetize his potential. 
Consider this experiment.
Close your eyes and imagine that you  can get whatever you want in life. Universe will offer you anything that you ask for. (Well that is true, Universe is bountiful, but that is not my point here). What will you ask for?
You will find that with opportunity to dream for anything, most people will limit their dreams. May be you will ask for 50 Crore Retirement Kitty, may be you will ask for a Crore of Rupees per year as annual income, may be you will dream of a 3 bedroom apartment....
You are scared of even 'Dreaming' for more. If I ask you to dream of getting 10 Crores of annual income, you are uncomfortable. You think of all the problems (Tax, moochers, pesky relatives) that a 10 Crore per annum can create. 
That is what Scarcity does to you.
Let me illustrate with another example. Suppose you are a regular to investing in Stock Market. You are a Savvy investor who knows the difference between topline and bottom line or between assets and liabilities. You can read financial statements, including the fine print. You have the skills required to analyse company performance.
In your research, you have identified a dream company. It has a low price, it has huge potential, it is under-performing the market due to external factors...
It is a great buy.
The question is, 
If you have 50 lakhs to invest, how much of that would you invest in this company? 
Will you invest the entire 50 lakhs? Or you will suddenly realize that you should not put all your eggs in one basket, and diversify?
The amount that you are willing to invest shows your Scarcity factor. The more 'scarcity' minded you are, the less you will invest in this company, even when you are 'SURE' that the price of this company will double in the next one year. 
Here you are fearful of your loss. T/he focus is on loss aversion, not gain, not potential. That is Scarcity.
The converse is also true. I see many people investing in real estate because they are 'Sure' that it will double in the next one year. Even Savvy investors.
That is greed.
Greed and Fear are two sides of 'Scarcity induced behaviour'.

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