Most things are differently valued by those who have them and by those who wish to get them: what belongs to us, and what we give away, always seems very precious to us. — Aristotle
The endowment effect (also known as divestiture aversion) is the finding that people are more likely to retain an object they own than acquire that same object when they do not own it. For instance, if I own a bread maker I’m reluctant to discard it, even though if I didn’t own one I wouldn’t buy one.
The endowment effect (EE) also asserts that we overvalue things we own. For instance, if we decide to sell our house we’re usually overly optimistic regarding it’s worth. We overvalue something we own regardless of its objective market value. EE runs rampant if we have an emotional or symbolic attachment to something—I’m likely to overvalue a painting that was painted by my mother.
Research has identified two main psychological causes of the endowment effect:
- Ownership: Studies have shown that people will value something they already own more than a similar item they do not own, much in line with the adage, “A bird in the hand is worth two in the bush.” It does not matter if the object in question was purchased or received as a gift; the effect still holds.
- Loss aversion: We tend to hold onto things we own, even though relinquishing them at a loss would be the better choice. This is why investors often hold onto unprofitable assets; the prospect of divesting at the prevailing market value does not meet their perceptions of its value. We often hold onto things that we should sell at a loss.
In short, we overvalue what we own.
We even overvalue, and are reluctant to jettison, our personal ideologies and convictions. If I have embraced a particular theory, philosophy, or principle most of my life, I’ll be hesitant to analyze its validity and even more reluctant to change positions because I’ve invested so much in it. For instance, people seldom change their political beliefs later in life because we have so much emotional and intellectual currency invested in them.
This relates to another topic: our reluctance to change. Over time, who we are and what we think and do become so engrained that we’re unwilling to entertain change and may even become unaware of other possibilities.
To make this post practical, let’s think of of what we “own” and simply reassess each item’s value. Is there an item, relationship, viewpoint, habit, or investment that we should reevaluate and then reduce or discard? This exercise will help affirm and solidify those things in our life that we believe to be true and valuable. It will lead to a fresh and renewed commitment to things we hold dear.
A must-read article
I like to read Adam Grant’s thoughts. I’ve read most of his books, and his article titled The Science of Changing Someone’s Mind (New York Times, January 31, 2021) is insightful and helpful.
All very true. Self Storage is a great business to be in. Access Self Storage and Truck Rental.
Doug…great observation. Storage units are a rather recent phenomenon. They are full of stuff that we could probably do without. Take care.
I recommend “Necessary Endings” by Dr. Henry Cloud.
Thanks, Ron, for reminding us of a good book – Necessary Endings by Cloud. Peter Drucker coined a term years ago – organized abandonment – to describe a regular activity in which we audit all systems, projects, products, etc. and abandon them if they no longer have value.
Thanks for your article. I think it would be good to understand what you mean by value. Is it the financial value of the item? I suspect the picture painted by your mother has sentimental value and, continues to join you to other members of your family. You may have been present when your mother painted the picture and it could be part of a scene in your life.
I definitely agree that we tend to overvalue our assets. Unfortunately, for those who have debts this give them some reassurance that they could sell those assets and recoup the money. A business owner might over value his stock to justify his overdraft.
We also like to convince ourselves that we have invested well in our “stuff”. It would be interesting to know how many people pay for storage for “stuff” that they never use and probably never will.
Often we can convince ourselves that we will use this stuff when we are retired; richer; have more leisure time. But does the time ever come?
Thanks, Angela. As always, your comments are insightful. We should consider the emotional/sentimental value of things because that is a type of value. But there’s a difference between a painting my mother painted (I have no need to sell it) and a house that I may be sentimentally attached to, but need to sell.
Interesting, isn’t it, that a rather new business model is storage units/companies. We have so much stuff that we need to rent a place to store it, but I think most people seldom look inside their storage units and that most of what’s in them we could do without.
Keep the comments coming.
Hi, Don!
Thank you for your thoughtful blog and for the attached article.
With those in mind, I’d like your opinion. My wife has read extensively about the COVID vaccines, which are (as you probably know) not vaccines at all by strict definition, but RNA modifiers (my layman’s language). Her conclusion is that she will NEVER take the COVID jab, which means we may never travel overseas again. I, too, have studied these inoculations in some depth, and I have my own concerns, as do many Christians. What’s your current feeling about them?
Steve, thanks for responding.I’m 100% in favor of getting the vaccine. Both Mary and I have had our first shot. There’s a lot of misinformation about the vaccine. It is safe and reliable. When major health organizations and major universities endorse it (CDC, NIH, WHO, Harvard, Oxford, Nature, The Lancet, etc.), their endorsement is more reliable than cable news channels and rogue websites. I hope you get the vaccine.