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.
ENDS
Notes for editors: ‘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.
For further information: contact Steffen Huck on 020-7679-5895 (email:
s.huck@ucl.ac.uk, website: http://www.ucl.ac.uk/~uctpshu), Georg Kirchsteiger on +32-
2650-4212 (email: gkirchst@ulb.ac.be); or RES Media Consultant Romesh Vaitilingam on
0117 983 9770 or 07768-661095 (email: romesh@compuserve.com).