New research explains people”s apparently irrational attachment to things that they own – why, for example, elderly homeowners don”t release capital from their homes to boost their income or capitalise on the booming housing market by selling up and moving to more convenient and lower cost accommodation.
Writing in the July 2005 Economic Journal, Professors Steffen Huck, Georg Kirchsteiger and Jorg Oechssler explain the phenomenon of liking what you have – what is known as the ”endowment effect” – in terms of evolution. In a hunter-gatherer environment, where people have to swap meat against berries to get a balanced diet, it is advantageous to like the food that one has immediate access to more than what seems reasonable from a purely nutritional stance. This is basically because you will, on average, make better deals.
Liking what you have can thus be explained by simple Darwinian principles, which suggests that our emotional attachment to some of our possessions might actually be hardwired into our brains. So it”s no wonder that people don”t sell their houses even though a casual observer would think they should.
Our attachment to things we own – and the fact that we demand much more to give up an object than we are willing to spend to acquire it – has puzzled economists and other social scientists for a long time. Why do we sometimes get so attached to apparently worthless things? And why do we value some of our possessions so much more than we would get for them on ebay?
The endowment effect has been established in some famous experiments. For example, Nobel laureate Daniel Kahnemann and his colleagues gave every other student in a class a coffee mug that carried the university”s logo. Students could then trade mugs: those who had been given one could sell them and those who had not been given one could buy them.
In analysing the offers that sellers and buyers made, it become soon apparent that sellers demanded on average much more for the mug than buyers were willing to pay. In other words, sellers who already owned a mug seemed to like the mugs more than buyers who didn”t own one. In just a few minutes, the sellers had thus become attached to their mugs.
”Learning to Like What You Have – Explaining the Endowment Effect” by Steffen Huck, Georg Kirchsteiger and Jorg Oechssler is published in the July 2005 issue of the Economic Journal. Steffen Huck is Professor of Economics at University College London. Georg Kirchsteiger is at ECARES, Université Libre de Bruxelles. Jorg Oechssler is at the University of Heidelberg.
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