Social media platforms are dismantling classical economic principles of scarcity and opportunity cost among young adults
In classical economics, a single individual is viewed as rational and only makes decisions after weighing the costs and benefits to maximise his or her utility. This approach rests on two very important ideas: scarcity (the notion that resources are limited) and opportunity cost (the value of the next best alternative forgone when a decision is made). These principles aid individuals in making rational choices based on resource constraints and competing opportunities. However, these days, the pervasive impact of social media especially seems to be violating these ideas for young adults. As social media becomes more integrated into daily lives and routines, the rational economic behavior driven by traditional economic theory seems more outdated than ever, given the amount of discretionary spending exercised by young students.
The Influence of Social Media on Young People’s Choices
Instagram, TikTok, and Snapchat have a single goal: to hold captive user attention for as long as possible. These platforms prioritise content selection based on engagement, such as likes, comments, and shares, rather than the actual information put out there. The way social media is structured rewards instantaneous gratification with the constant supply of stimulation, building habits like those seen in drug addicts. This is why social media can do much more damage than traditional forms of media; while the latter has a limited amount of content within a particular timeframe, social media inundates users perpetually. This is highly problematic for young individuals, as it fosters an environment where they are conditioned to seek instant results without putting in hard work and waiting.
Impulsive buying behaviour, particularly amongst Gen Z and Millennials, can be attributed to this phenomenon. Research shows that both these demographics heavily rely on social media, which influences their buying behavior at an alarming rate. In fact, recent studies done by Wealth Professional show 51% of Generation Z and 43% of Millennials claim they have made unaffordable expenses just because they spotted something being promoted on TikTok or Instagram. Instead of thinking about the financial costs associated with shopping influenced by social media propaganda and videos, these young adults make purchases solely based off emotional responses, resulting in irrational economic decisions fomenting spending trade-offs they don’t actually have.
These spontaneous purchases often ignore the idea of scarcity, which is the fact that money and time are limited resources. If young people do not recognise scarcity when making decisions, they may end up overcommitting to certain desires and ignoring more important long-term goals, such as saving funds, investing, or getting an education. This not only displays a lack of understanding and poor economic decision-making but also reveals an alarming absence of conscious thought around necessary trade-offs.
Opportunity Cost and Scarcity in the Modern World
Within classical economics, scarcity refers to how finite resources are; because resources are limited, individuals will need to make choices on how to best allocate them. Opportunity cost relates to the value of the next-best alternative that must be forfeited—sacrificed—when a decision is made. These two concepts form the basis of rational economic behavior because both motivate individuals to think beyond immediate gratification and consider long-term cash costs associated with other options being left unattended or unused.
Social media has a way of twisting these key ideas. The never-ending stream of new content, advertisements, and user stories creates an illusion of excess. Such a digital environment can mislead youth into thinking that resources are more plentiful than they actually are, resulting in a lesser appreciation for scarcity. For example, time is often seen as boundless in the online world because users interact superficially and scroll through feeds for hours on end. This may result in effective time management going out the window, contributing to the neglect of more productive things like studying or working.
Additionally, opportunity cost, which requires spending time to assess different values for various options, is becoming less noticeable in the digital era. While social media is full of new forms of shows and entertainment to consume, younger audiences may miss out on focusing on more valuable activities like learning new skills or networking professionally. Instead, they choose content that satisfies their needs instantly but provides no aid in their personal development or success in the future. As stated in the Journal of Youth and Adolescence, students were performing worse academically than in previous years because they had shifted most of their attention towards social media.
The lack of consideration towards opportunity costs could be harmful in the long run. With that being said, if a person were to spend all their free hours scrolling through social media platforms, chances are they would miss out on gaining important skills essential in building proper connections necessary for career growth. From this perspective, social media acts as a disguised form of focus loss, where the investment gives immediate gratification while diverting priority from focus areas with greater returns over time.
Rationality and Social Media: A Philosophical View
The concept of rationality has undergone significant changes over the years, with different thinkers providing various interpretations regarding what rational behavior entails. One of the most notable rationalists, René Descartes, reasoned that only logic could ensure knowledge or decision-making, claiming it to be the foundation on which all human decisions could be built. To achieve Descartes’ version of rationality required a lot more logic than what social media allows these days. Rather, his approach set him up for a much more orderly way of thinking that is difficult to achieve in this day and age due to social media.
Social media platforms such as Twitter are often used as verification tools, allowing individuals to aimlessly scroll through posts while skimming over everything said within them. This style of sharing information shifts user focus from inner experiences towards societal interactions. Looking away from social media for a moment sheds light on existentialist philosophies put forth by Jean-Paul Sartre and Martin Heidegger, essentially aimed at questioning logical reasoning, suggesting that reasoning alone cannot fully encompass human existence and fails to dissect the essence of humanity accurately. Unlike Twitter, where every inch matters, Instagram is driven by comparison while desiring relentless affirmation, keeping things competitive, aiming, distorting one’s perception, and invoking outside influence rather than trusting inner navigation. Tricky!
In addition, Herbert Simon talked about “bounded rationality” as an idea. He believed that people didn’t always make perfectly rational decisions because there are limits on how much information someone can process and their thinking skills. When looking at the use of social media, the concept of bounded rationality stands out since users get flooded with a lot of information, making it impossible to process all relevant bits. How this information is presented, coupled with young people’s unconscious design features of social media platforms that provoke emotions, heightens the difficulties in making balanced decisions even further.
The Effects of Social Networks on Long-Term Economics
Decisions cannot only be shaped by social media during the spending process. In the long run, procrastination as an irrational economic behaviour can have serious financial repercussions. An American Psychological Association study showed that younger people tend to experience severe financial anxiety about their social media habits. This anxiety is typically worsened by the portrayal of lavish lifestyles and expensive items on social platforms that mask reality and set unattainable goals of affluence. Because of this, a significant proportion of young adults seem to envy or wish to emulate their friends instead of prioritising sensible spending for their own needs and wind up taking out loans just to afford fancy cars because it’s trending.
In addition, there are other higher-level concerns, such as education, careers, and even politics, that can be impacted by social networks. People, in most cases, lack information, which causes them to rely on memes created by influencers on social networks, educating them, thus settling for less as opposed to well-informed, balanced views. Because people make important decisions based on what goes trending at a certain time, this can result in poor return-over-time career options or educational pursuits, where people appear validated instantly but fail miserably in the long-term value proposition analysis post-evaluation stage.
In conclusion, social media has changed the way young people make decisions in so many ways. As much as opportunity cost matters in traditional economic models, social media’s environment undermines this principle. Nowadays, with social media being driven by algorithms seeking instant rewards, the constant need for immediate satisfaction results in emotionally charged and impulsive decision-making. This shift away from rational economics can lead to dire financial consequences, in addition to affecting education, career choices, and personal growth.
To address the issues stemming from social media concerning rational economic behaviour, nurturing critical thinking skills proves effective. By promoting digital literacy among the youth, we are one step closer towards safeguarding them from instant gratification traps posing a threat to long-term, value-aligned choices amidst complicated, temporally blurred realities. There is a greater responsibility placed upon educators, policymakers, and parents together, which requires encouraging informed decision-making for a digitally simulated, world-based reality.
The writer is an Assistant Professor of Economics, Department of Management, University of the People, USA
Dr Firdous Ahmad Malik
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