Today I was at the cafe and the idea for today’s blog occurred to me. Supply and demand influences our perception of the value of things all the time. In fact, even at the cafe, I noticed this principle at work. Today I walked in and the place was lively and crowded. I looked around and it didn’t seem that there were many spots to sit. I found a spot at a big, long table, and was relieved to have one. A few moments later, as I was waiting in line to purchase a coffee, two parties of people got up, instantly making much more sitting room. All of a sudden, I was questioning my spot: what one moment before I was relieved about, because of the shortage of seating at the time, was suddenly not as ideal. Perhaps a better spot awaited me? Yet I was in line, and so I had to be content with my spot, despite a moment of regret at “giving up” a more favorable spot!
How funny the mind is! Yet to me, it’s like I played through, in microcosm, the entire economic cycle, and how a product or service can be valued based on supply and demand. One minute something seems golden, unattainable, coveted… and is therefore priced accordingly. Another minute, that same product or service might look like a has-been, or fall out of favor, based on other developments.
When I was working on the Periodic Table of Investment Returns, what was so clear to me is that importance of relative performance. In other words, we humans usually don’t judge something solely by how it is intrinsically. We often compare it to how it is performing compared to other things.
This is what I observed today in my own mind, as the spot I chose changed from being a relief (that I could find any spot at all!) to a regret (that I was missing out on potentially better spots). This process in my head happened instantly, and automatically. Fortunately, I made peace with my choice, and was contented. But it was interesting how my head brought me in a little roller coaster as I assessed the “value” of my choice.
Here are some notes I jotted down about this experience while at the cafe:
- When spots to sit at are scarce, people’s (and my) behavior modifies… they (I/we) ask others more assertively if spots are taken, and they are more willing to settle for less ideal spots.
- The “value” of a spot grows (or shrinks) depending on how busy it is, how many people are in the cafe, and how many spots are available.
- My reaction at each point: I walked in and it was packed (surprise). I was glad to get a spot at the long table (relief). But when two parties suddenly left, there were many spots suddenly open, and I started to wonder if there were better spots available than the one I climbed (regret/doubt). Since I was in line, I couldn’t pick up my backpack from my claimed spot to move it somewhere else, so I decided to make the best of my spot (acceptance).
- What would I “give” for a spot when there were few available, and what won’t I give if there are many? Supply and demand seem to be impacting my perception of the value of available seating.
- My view of the “value” of my spot changes from relief to regret (though fortunately I accepted and made the best of it) in a moment’s time. But was my mind’s assessment accurate? What is the true value of a particular place to sit? Does sitting at spots I think are better (ie usually more private, or a table to myself) really improve my experience? In the long-run, might it be better for me to surrender to a “lower value” spot (where I have to deal with other people) rather than having to control the situation? Is the more desired outcome really the best for me?
- We humans have automatic assessments of value based on popularity/supply and demand. By reflex, we judge the value of something, even if that value-judgment is irrational or completely wrong!
- I think this situation is a lot like economics. For instance, the herd mentality driving up the price of a stock. Such things may not be the result of real value, but instead the perception of value, caused by a good story or some other source of temporary popularity.