Hello!
Seiiti Arata.
You're a crazy person, and I'm going to prove it in the next few seconds.
On one hand, we say that humans are the only rational animals in nature.
We like to describe ourselves as beings who act based on reason, logic, and intelligence.
But, if you analyze some of the decisions that you have made in your life, you will
see that you are pretty crazy.
You make decisions based on emotion, rather than reason.
Especially when these decisions are financial.
To encourage you to spend money, there is an army of advertisers, psychologists, data
scientists, and many other experts all looking for strategies to stir your emotions.
There's a branch of science just to study this: behavioral economics.
Even if behavioral economists have already explained these marketing tricks that you
are aware of, you are still likely to fall for them again and again.
After all, there's nothing rational about this kind of decision making: it's all driven
by emotion.
For example, if I told you that the demand for diamonds comes from a manipulation of
public opinion…
do you think this story would stop you from buying a diamond ring?
Diamonds are the best example of how experts manipulate your emotions to make you spend
money.
You may think that diamonds are extremely rare gemstones extracted from nature.
But the truth is that diamonds are not that rare!
There is value in assets that are absolutely scarce, like bitcoin... or that are simply
hard to extract, like gold.
With a limited amount of gold on planet Earth, there are already ideas of mining asteroids
in the future.
That being said, both gold and bitcoin are valuable because of their actual scarcity.
However, in the case of diamonds, the valuation is more dependent on a manipulation of market
perception.
Until the 19th century, diamonds were perceived as a rarity.
Only nobles and people from royal families had diamonds.
But in 1870, diamond mines were discovered in South Africa.
There was a sudden boom in the supply of diamonds.
As you learned in school, whenever the supply of a product goes up, the prices go down.
That's what started to happen with the price of diamonds.
As the intrinsic value of diamond is low, its price mainly depends on scarcity.
English bankers financed diamond mining in South Africa.
They soon realized that there was a huge risk: if the distribution was not controlled, the
sudden supply of tons of diamonds could cause diamonds to become a semi-precious stone.
To manage the supply of diamonds, ninety percent of the world's diamond extraction and distribution
came under the control of a single business group at the beginning of the twentieth century.
Reducing supply was not enough to prevent prices from falling.
It was also necessary to increase demand.
That is, it was necessary to create a greater desire for diamonds.
With Europe destroyed by wars, the perfect market to sell diamonds was in the United
States.
However, the Great Crisis of 1929 ended up reducing the demand for diamonds worldwide.
The group that controlled the extraction of diamonds decided it was time to bring in advertisers
to shape the minds of consumers.
After plenty of testing and market research, advertisers created a campaign called "Diamonds
Are Forever", focused on young couples preparing for marriage.
It was this famous campaign that created the custom of wearing diamond rings for engagements.
Advertisements, celebrities, and catchy phrases shaped the perception that buying diamond
jewelry was necessary to prove the love and devotion of the bride and groom.
The idea was that for a marriage to be eternal, the union deserved a jewel that was also eternal.
Behind receiving a diamond was an emotional context that indicated it would be an "eternal"
gem.
A diamond should not be resold or passed down to children and grandchildren.
The right thing to do was to sacrifice at least three months of salary to acquire the
ring.
Advertising worked very well.
And it helped to expand the number of consumers.
After the United States, the new markets were Germany, Brazil, and Japan.
Today, diamond traders have found a new market: Chinese brides.
In a country that never had a tradition of consuming diamonds for engagement, there are
cities today where it is expected to sell one diamond for every four newlyweds.
Even when understanding that the need for diamonds is a creation of advertising, people
keep buying.
Now you know that the diamond price is rigged.
Imagine if I told you this story a few minutes before you were to buy a diamond ring.
Would you change your mind?
Probably not.
Therefore, I just proved that you are a crazy person.
More specifically, you are predictably irrational.
Do the test.
Forward this video to someone in your family who is about to buy diamond jewelry.
Or tell the story of the diamond to a couple in love with their credit card in hand, about
to buy a diamond ring.
Would the couple change the purchase decision when they learn about historical facts that
show manipulation in the perception of the diamond's value?
Probably not.
A couple who celebrates their love with a piece of jewelry is following an emotional
intention, not a rational intention.
They buy diamond jewelry because everyone else is doing the same thing.
It's like a social obligation.
There is no rule saying that the engagement ring has to be made of diamond.
This is not even an ancient tradition.
It was merely a necessity crafted by advertising.
The biggest question here is: why a diamond ring?
Couldn't it just be gold or silver?
Couldn't it be another stone, like ruby ​​or emerald?
See that we are not belittling or judging the hypothetical couple's decision!
When your finances are healthy and under control, you can and should spend money on what satisfies
you.
The problem is that a couple entering adulthood, about to get married and start a family, already
has a lot of expenses.
In addition to all these expenses, the couple leaves part of their money at the jewelry
store to buy a gemstone that loses half its value as soon as it leaves the store.
If one day the couple needs to sell the jewelry, they will sell it for a much lower price than
what they bought it for.
The point to illustrate with the story of diamonds and the buying decision of the couple
in love is that we don't make choices based purely on rational information.
We are manipulated at all times by specialized professionals trained to mess with our emotions.
Therefore, we make fewer rational decisions than we should.
The same manipulation of diamonds happens every day with products that you consume.
You might be thinking that this diamond thing has nothing to do with you.
That when you got married, you didn't buy a diamond ring, or you're never going to marry,
or you don't care about jewelry.
But diamonds are just one example.
Manipulation that artificially creates desires happens with many products and services that
you consume unnecessarily.
Think of the luxury car, the shampoo with "smart ceramides", the expensive clothes that
bear the logo of a famous brand.
Creating desires for you to spend your money on is an intrinsic part of the capitalist
system.
Even if you feel immune to these advertisements, they work with many people and end up forcing
you to accept some of them out of social obligation.
To make fewer emotional decisions, you need to admit your own irrationality.
You need to know yourself and realize that many purchasing decisions are not based on
reason.
Many decisions are made on impulse, on emotion.
The best way to resist is to avoid temptations.
If you can, stay away from advertisements.
Skip the commercials and install ad blockers.
When it comes down to it, pay to use an app if it makes you free of ads.
There is no free lunch.
If you are not paying money directly for a product or service, you are paying indirectly
in another way: with your personal data, with your attention, with your time.
Another way to protect yourself is to study a little about behavioral economics, marketing,
and advertising to understand the tricks that advertisers use to manipulate our emotions:
programmed scarcity, reciprocity, commitment and consistency, argument from authority,
and social proof.
You are more likely to protect yourself.
This is exactly what we do inside our financial education training, and you can watch a master
class right now at https://arata.se/moneytaboo.
If you want a book tip, try reading Predictably Irrational by Dan Ariely, that shows how and
why we make decisions driven more by emotion than reason.
It is essential to have access to quality information.
But what we do with the information is even more decisive.
Whenever you buy a product or service, stop and think if you're making that decision the
right way.
If need be, come home.
Breathe.
Reflect.
Let a few days pass to see if the purchase is simply an impulse.
You don't have to be a greedy person who doesn't open his wallet for anything.
But you need to take good care of your money to avoid being manipulated into spending it
on things that you don't need.
We like to think of humans as rational beings who make decisions based on reason, logic,
and intelligence.
But we have to admit that most of our decisions are irrational, based on emotion.
Sometimes we are really crazy, especially when we talk about financial decisions.
In today's conversation, we saw an example of how diamond traders created a need that
didn't exist, manipulating the minds of millions of people to buy an expensive and unnecessary
product.
To avoid falling into traps like this, you need to increase your financial knowledge.
Therefore, I invite you to learn about our financial education training, Truly Wealthy.
Access a special class on money taboos right now at https://arata.se/moneytaboo.