The Great Mental Models, Volume 4

From the The fourth and final installment in the timeless Great Mental Models series. Time and time again, great thinkers such as Charlie Munger and Warren Buffett have credited their success to mental models–representations of how something works that can scale onto other fields. Mastering a small number of mental models enables you to rapidly grasp new information, identify patterns others miss, and avoid the common mistakes that hold people back. Volume 4 of Some of the mental models covered in this book include:; <The Great Mental Models< series demystifies once elusive concepts and illuminates rich knowledge that traditional education overlooks. This series is the most comprehensive and accessible guide on using mental models to better understand our world, solve problems, and gain an advantage.

Auteur

Shane Parrish is the author of the New York Times bestseller Clear Thinking. He is an entrepreneur and wisdom seeker behind the popular website Farnam Street, where he focuses on turning timeless insights into action. His work has been featured in nearly every major publication, including The New York Times, The Wall Street Journal, and The Economist. His weekly newsletter, Brain Food, has captivated the minds of over half a million subscribers worldwide and his podcast, The Knowledge Project, is one of the most popular in the world.

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"From the New York Times bestselling author of Clear Thinking and Farnam Street founder, Shane Parrish. The fourth and final installment in the timeless Great Mental Models series"--

Échantillon de lecture
Scarcity

When resources are finite.

It sometimes feels as
if we have temporarily solved the problem of scarcity and replaced
it with the problem
of excess.

-Matt Haig

Economics, as a field, exists because of a fundamental problem we face as individuals, groups, and a species: how to allocate scarce resources to meet limitless needs. All resources are scarce, meaning there is a finite amount available.

Scarcity is like having one pizza for a hundred people at a party. You don't have enough for everyone who wants it. In economics, scarcity means a limited supply of things people want or need, such as money, time, or raw materials. One way to look at the development of human societies over time is as a process of overcoming different kinds of scarcity. Technology enables us to increase our access to scarce resources or to decrease our requirements for them.

Scarcity forces creativity and invention. When we run up against limits, we find ways to increase supply of or reduce demand for resources. While eliminating scarcity is unlikely, technology helps us make resources go further.

Where there is scarcity of something, its price goes up. For a resource to have economic value, it must be both scarce and desirable. If something is scarce, but no one wants or needs it, then it has no or low value. If something is desirable but not scarce, its value is also low or nonexistent. A resource can be valuable purely by dint of being scarce-for example, if owning it serves as a signal of wealth.

Perceptions of scarcity impact our ability to make decisions. Not only does scarcity trigger our biological instinct for self-preservation, it often results in making trade-offs. We become fenced in by perceived limits, whether they reflect actual limits or not.

Experiencing temporary scarcity of something essential can impact our actions for a long time after. For example, someone who grows up in poverty and then, later in life, makes a lot of money may continue to fear running out of money or may retain frugal habits that are no longer needed. The Great Depression is an example of this; many people who grew up during the Depression maintained the same resource-preserving behaviors well after it ended.

Looking back at how our time or money was spent during moments of scarcity, we are bound to be disappointed. Immediate scarcity looms large, and important things unrelated to it will be neglected. When we experience scarcity again and again, these omissions can add up.

-Sendhil Mullainathan and Eldar Shafir

When we lack what we need, we are often forced to make complex, even constant, calculations, which is mentally taxing and leaves less attention for other things.

Scarcity may be harmful to us when it comes to the requirements of living, like food, but that doesn't mean abundance is always good news for our thinking. The kind of abundance many people in wealthy countries experience is something altogether new in human history. Food, for example, has never been more abundant in wealthy countries. Yes, we need to eat, but we don't need to eat a lot of refined sugar. When a resource that has been scarce for much of human history becomes abundant to the point where we can access more than we need or have the capacity to use, we may struggle to stop consuming it.

When one resource becomes more abundant, something else tends to become the bottleneck restricting how much we can consume. Making a lot of money, say, can come at the expense of not having enough time to spend it. We may need to moderate our use of one resource to allow us to realize the benefit of another.

Sometimes, making something more abundant (whether in reality or perception) can go both ways in terms of affecting how much of it people consume. Usually, the more abundant something desirable is, the more of it we consume. Think rice in Asia, bread in Italy, coconuts in Costa Rica-the abundance of something brings its price down. However, if we expect something desirable to be in short supply, we may behave in detrimental ways. The possibility of a short supply of a resource can trigger the urge to hoard as much of it as possible for ourselves, as we saw with the hoarding of basics like toilet paper during the early days of the COVID pandemic.

Scarcity can also perpetuate itself. When access to a resource has previously been severely limited, leading to high economic value, it creates strong incentives to maintain its scarcity, even if the resource actually becomes abundant. Take diamonds: for centuries, their supply was tightly controlled, making them expensive. Now we can grow flawless diamonds in labs, but the industry still works hard to preserve the perception of scarcity. They're not selling diamonds; they're selling the story.

Scarcity is the business model of the luxury sector. Luxury brands take advantage of one particular aspect of psychology: the fact that the more scarce something is, the more we want it. Hermès can make more Birkin bags but chooses not to. Fewer than 100,000 Birkins are made every year, and the process of buying one is famously difficult-it involves either waiting for months or having a purchase history with Hermès. This controlled scarcity is key to the high prices of the luxury sector.

Scarcity as a model is very useful as a tool for second-order thinking. If I get more or less of something, what is the result? More money? Great! What will I spend it on? How will my life be different when I've made those choices? For example, money seems to be the most sought-after resource, since it's key to obtaining many others. Yet lottery winners often end up richer (at least temporarily) but not much happier, having walked into new problems: loss of privacy, risk of exploitation, being valued for your money and not your character, and struggling to balance a huge new responsibility in a way your family and friends see as fair.

In our personal lives, scarcity can be a great motivator. When we think about reducing scarcity, maybe we think about learning new skills to increase our income. Maybe we think about changing jobs to earn a higher salary or decrease our commute. In both cases, we are aiming to give ourselves more of a resource, either money or time, and theref…