The psychology and economics of diamonds

The estimated current worldwide diamond is $72 billion dollars. This paper will emphasize the relevance of psychology in the economic world of diamonds. Why do diamond makes people so happy and do people pay exuberant prices for diamonds? The basic argument of this article is that diamonds provide a psychological utility (happiness).

Diamonds were first discovered in India about 3,000 years ago and the psychological utility and value of diamonds is based on the traditions that diamonds are beautiful and rare. Before the discoveries of the mines in Africa and the limited technologies to mine diamonds, supplies were short and people hoarded diamonds and a means for accumulating wealth and for trade. As wealth was associated with power, diamonds were sometimes used as a display of wealth to signal power. The psychological utility of the diamond stems for the traditions that diamond provides symbol of wealth, power, beauty, rarity, romance, commitment and so forth.   

One of the best explanation of the value of diamond is the classic economic paradox: why are diamonds more expensive than water.  Water is critical to man's need for survival while diamonds in contrasts has no value in terms of man's physical survival. However, because water is so plentiful and diamonds are so rare compared to water and it's tradition and history. Diamonds are much more valuable than waters in economic terms rather than physical utility. Very few people can swim in a pool of diamonds much less take a bath in diamonds.