If something is already ours, we want to keep it, since at the end of the day we have given ourselves the penalty of obtaining it, It represents a transaction cost for us that requires money, time or fatigue. Even so, once we have it, it is an opportunity, since we do not have to do anything else to get it. That's when we think that the things we already have are worth more.
This phenomenon is the so-called endowment effect, explored by psychologist Richard Thaler. In this Psychology-Online article, we will see together about what is the endowment effect and some examples to understand it better.
The meaning of the endowment effect, or effect edowment, refers to the different valuation assigned to an asset if you own it. In other words, if an object belongs to us and has a emotional meaning, the economic value that we recognize is higher than that assigned to it by a person who does not own it.
The endowment effect therefore shows that individuals feel a greater sorrow for losing assets. goods they possess than the pleasure they would feel if they tried to acquire the same objects if they did not possessed.
In more macroeconomic terms, this effect may produce less market activity because there is a tendency to underestimate the value of money which is renounced by not selling a good. In this article, we tell you how to improve the relationship with money.
Richard Thaler summarizes this particular economic effect as follows:
- Consider the case of a two week trial period, with a full money back guarantee. At the first decision point, the consumer thinks that he will be able to lose as much as possible the transaction costs resulting from taking that good home and then returning it. The second decision point comes two weeks later. If the consumer has fully adapted to the purchase, he considers the cost of keeping that asset as an opportunity cost and, once this happens, the sale is more likely.
The endowment effect is also found when we shop online. Somehow we end up thinking that we already have the desired object in our hands. Having the images in hand, for example, on a mobile device, touching the screen, makes our mind think that in some way we already possess that object and, therefore, we give it a greater value.
The fundamental result of this effect is that we give more value to an object when we own it, a factor that has been identified by multiple investigations. Let's look at some examples of endowment effect experiments:
Kahneman, Thaler and Knetsch experiment
A well-known example of the endowment effect. This experiment took place at the university. Upon arrival at the institution, first-year students are divided into two groups. The first group finds in the room a nice cup of tea accompanied by a welcome card and with the indication that in the inner store it is possible, for those who wish, to buy other cups at a cost of 4 Dollars.
The second group, on the other hand, does not find any cups in their room. The two groups meet in a room in order to negotiate the price of these cups in order to find out how many dollars had asked the owners of the cups how many dollars they were willing to pay to students without Bowl.
Sellers were willing to sell their mugs for no less than $ 5.25, while buyers were willing to pay no more than $ 2.75. We observe that the mere fact of becoming the owner of an asset instantly justifies a request for money twice that of those who do not own the asset.
Warzlawick's tale
Perhaps the best way to explain how the endowment effect can lead us to remain attached to our decisions is with an account by Watzlawick.
In the story he places us somewhere in the tropics where the monkeys are captured in the following way: puts a pumpkin on the ground and on top of it is placed a fruit of which apes are particularly sweet tooth. The opening of the gourd is wide enough that the monkey can reach inside, but when it has taken the fruit, it can no longer pull its hand with the fruit through the opening.
To be free again, it would be enough for him to let go of the bait and take out his hand, but his greed does not allow it. Thus he becomes a prisoner of himself because, while the monkey is unable to leave the loot and flee, the hunters arrive and throw him over a net.
This article is merely informative, in Psychology-Online we do not have the power to make a diagnosis or recommend a treatment. We invite you to go to a psychologist to treat your particular case.
