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by Phil Hesketh
A funny thing happens whenever you make a purchase. Apart from money leaving your account and a new possession taking up space in your home, if it’s something you bought for yourself then something a bit weird also happens inside your head. You get overly attached to the item that you bought. Whether it’s a dining table, a pair of jeans, or a mail-order bride. No matter what it is and what you paid for it, in the moment that something becomes your property it undergoes an amazing transformation.
Psychologists explain this as a cognitive bias called ‘the endowment effect’. The theory goes that because you chose it personally and you associate it with yourself, its value is immediately increased and you feel protective towards it. ‘It’s mine, so keep your hands off’ kind of thing. That particularly goes for the mail order bride.
To prove the theory, a study was undertaken at Carnegie Mellon University by a chap called Carey Morewedge. That really is his surname – more wedge. He married a girl called Lucy Moneybags and although she’s really keen to get pregnant and start a family so far there’s been no change. I just thought I’d mention that.
OK - the bit about Lucy was a gag. Well, it is Christmas.
Back to the study…
Apparently, the endowment effect not only makes us more keen to hang on to stuff, it also makes us value the item far higher than it’s actually worth. So, for instance, if someone offers to buy it from you, the chances are you’ll want to charge much more than they are prepared to pay. It’s also the reason that some people have lofts and garages full of junk which they can’t bear to throw away. The bottom line is, once you own something, you tend to set its financial value way higher than other people do.
When tested experimentally the endowment effect can be surprisingly strong. One study by Dan Ariely and Ziv Carmon found that owners of tickets for a basketball match overvalued them by a factor of 14. In other words sellers wanted 14 times more than others were prepared to pay. Naturally, this is a particularly extreme example and the ratio will vary depending on what it is.
The endowment effect is particularly strong for things that are very personal and easy to associate with the self, like a piece of jewellery your partner bought as a Christmas present such as an eternity ring. Here, the sentimental value of an item obviously justifies the over-valuation. However, nothing can prepare you for the loud shrieks and wails should you ever accidentally drop it down your sink’s waste disposal unit.
Talk about eternity – it seemed like a lifetime to retrieve that.
My ears were still ringing the following week.
Similarly, we also overvalue things we’ve had for a long time, whether they were bought as a Christmas present or just for yourself. Like a broken old timepiece you’ll never get fixed, or your first set of golf clubs that aren’t really broken but somehow never really worked that well. Still you’ve got all those happy recollections of playing in the sand with them. You can’t replace memories like that. I know, I’ve tried.
The bottom line is that, more often than not, we all hold on to far too many old possessions for no good reason. So, take a good look around you BEFORE you buy Christmas presents this year. And if you’re surrounded by rubbish, ask yourself this question: do I really need all this, or is it simply the endowment effect? It’s only stuff after all.
And as for buying Christmas presents for those closest to you? Well, both giver and receiver will enjoy ‘experiences’ (a box at the theatre, a pair of tickets to a sporting event, a weekend break at a luxury spa etc) far more than ‘stuff’.
And you won’t have to worry about over valued things which you can’t bear to throw away.