Diamond-Water Paradox
If I ask you, what's the most valuable resource on Earth? What would your answer be? Diamonds? Antimatter? Well, those aren't wrong.
Let me introduce you, how broken the valuation is in human preferences
The Diamond-Water Paradox was first introduced by the father of modern economics, Adam Smith. In his book, The Wealth of Nations, he compared expensive diamonds (which are non-essential for humans as living beings) with cheap water (which is essential for human survival).
How can something so "valuable" be much cheaper than something "worthless"? This shows that humans have a "problem" in valuing or labeling things.
When a man's basic needs are fulfilled, higher-level needs emerge. Beyond other considerations, humans consistently seek what sets them apart from others. They want to be different, a unique entity, the one and only in this life. This aligns with Maslow's Hierarchy of Needs, which divides human needs into five levels:
- Physiological Needs, the basic needs that must be met for survival, such as food, air, rest, and clothing.
- Safety Needs, once physiological needs are met, humans have an instinct to feel safe and secure.
- Belongingness and Love, when basic needs are sufficiently met, humans tend to fulfill social and affection needs.
- Esteem Needs, the need for esteem becomes important after the previous needs are met, including the need for respect and recognition.
- Self Actualization Needs, humans desire to be acknowledged by others, praised, or at least have their work recognized by many people.
Based on this hierarchy, I can conclude that the high valuation of diamonds (apart from their cost) is because they can fulfill the fourth and fifth points. Additionally, availability or scarcity also plays a role in determining value. Diamonds are expensive because they are harder to obtain compared to water.
However, water is far more essential because it is at the very bottom of the hierarchy, a basic need for us as living beings. But let's just imagine, if drinkable water was so hard to find, how much do you think the price of water would be? :D
In my opinion, this is also why humans constantly strive to meet needs beyond their basic ones and seek their identity. The desire to be special and unique propels humans to keep growing and evolving, even after their basic needs have been met.
So, what can we learn from this?
- Basic needs, always focus on our basic needs. If something is really hyped but we don't need it, don't buy it just to follow the trend.
- Value is subjective, if someone undervalues something or someone, it means that thing or person is just in the wrong environment or hands. It's the same with items that become mementos.
Everything has its own value. Don't overvalue or undervalue something. You never know its value when you don't need it. You only know the value of something if you lose it or need it the most. 😔👍🏻