165 // Endowment Bias

Research indicates that when you own a thing, it becomes more attractive, valuable, and of better quality to you. We found that the “mere ownership effect” is as strong in immaterial objects as it is in material ones.

Endowment Bias

Imagine that you are evaluating an item in terms of its attractiveness or value—let’s say, your car. What influences your evaluation? Probably the way it looks, maybe its quality. But there’s another, seemingly irrelevant aspect that matters more than you might think—whether or not you own it. Research indicates that when you own something, it becomes more attractive, valuable, and of better quality to you. Economists call it an “endowment effect”. What this means is that owned things are more than twice as valuable as identical items you do not own!

Studies conducted even show that the endowment effect applies to intangible things as well, like your beliefs or values. This could be that we see the things we own as a reflection of ourselves. We assert our identities, at least in part, through how we present ourselves. Another explanation is a thing called “loss aversion.” Loss aversion is the concept that people hate losing things.

Understanding the Endowment Effect

Let’s run through a quick thought experiment from the author of this article to test how this works in daily life – assume we have come up with an idea in science, an idea that we started to explore and share with other academics. This idea spreads as more people use it in their own studies, allowing them to feel ownership.

Then, a new idea appears. It may be objectively better than our idea, but, due to its freshness, it lacks the general approval from researchers that our shared idea has. The researchers may suppress the new idea, or set a level of requirements much higher for this new perspective than they would have for their own idea.

The bias found in attitude towards owning a new pair of shoes is equally pronounced in far more important issues, such as combing through false claims to uncover the truth or evaluating a political or social cause. In this way, the mere endowment effect of ideas can slow down or even stop progress not only in science, but also in the economy, in politics, or in culture.

Keep this in mind when you’re watching videos or reading social commentaries of people telling you what to do about inflation or the stock market.

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