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The Marshmallow Challenge

In the early 1970's, psychologist and Stanford University professor Walter Mischel led a series of studies on delayed gratification. His major work, The Marshmallow Experiment, took place at a nursery school, using children age four to six as subjects. Each child in turn was left alone in a room with a reward, and given the choice between taking his one reward (often a marshmallow) immediately, or receiving a double reward if he waited 15 minutes. It turned out that most of the children couldn’t resist the temptation. They sniffed, they licked, they smashed and eventually ate the reward - some even before the tester left the room!

Years later, in 1986, follow up studies illustrated that the children who were able to delay their satisfaction in the original study showed the ability to use logic as a useful impulse control method and therefore achieved more successful, prosperous life outcomes.

Now let’s say that government sponsored banks are giving unlimited credit to the diamond industry, hoping to fertilize the industry that provides livelihood for the population, growth in the economy and rehabilitation of the infrastructure. The diamond industry’s contribution to a country is undoubtedly significant and necessary. The government’s intention is indeed noble – to revitalize, secure and uplift the nation’s financial stability and future. But however honorable the original intention may be, the plan could nevertheless become thwarted if carried out improperly. In fact, it could go terribly wrong and bring about rapid deterioration of the booming, utopian industry in any given country.

Negative Profits

In any instance when ample credit allows purchase capabilities to become unlimited, beating the competition at market prices is inevitable. Reasonable pricing vanishes (it becomes irrelevant) and therefore, the (falsely inflated) market value of the goods becomes outrageously expensive.

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The temptation of those with unlimited credit to inject money into other potentially promising industries like real estate, currencies, gold and other natural resources is almost too great, just like a sweet marshmallow that one can't bear to forgo. This tendency leads to circular transactions.

And when a company’s core business focuses on circular transactions, it will eventually produce negative profits. While it may seem attractive in the short term, since the numbers seem initially productive, this practice, over the long term, signifies the beginning of a rapid deterioration into the groundwater of financial loss. Ultimately, the only ones who would benefit from the illusion of financial freedom and inflated profitability are the suppliers.

Ultimately, the same country which aspired to fertilize the soil of a prosperous industry will not see the fruits of its investment. Companies and industries that are tempted to maximize profits immediately at the cost of long term financial stability will eventually gain nothing, or lose it all.

All For One and One For All

In 2012, researchers at the University of Rochester carried out the marshmallow experiment again, but with one important difference. They divided the children into two groups. One group was continuously disappointed by the tester’s consistently unfulfilled promises, while the other group was content by seeing every promise fulfilled.

Now, the marshmallow test followed as before, but this time, the level of trust played a key role in the decision-making. The results were as expected. The consistently defrauded group waited less than three minutes, on average, to eat the first marshmallow reward. In contrast, the second group waited 12 minutes, on average, and won the second marshmallow.

In the complex world we live in, affected by emotions, ego, different behaviors and responses of other people around us, trust is an important element in making quick decisions. We are obligated to train ourselves to create meticulous filters in making decisions. And we are obligated to be trustworthy so we can work together in harmony.

Trust is the bedrock on which our industry is built. Loss of confidence creates a crack in the foundations of the diamond legacy that threatens to undermine stability and balance. It causes a chain reaction leading to destruction, panic, and an impaired ability to focus. Eventually, disaster ensues.

So, given the challenging situation in which the diamond industry currently finds itself, why don't we try to wait at least 15 minutes before dashing over to the next marshmallow?