The Endowment Effect: Why You Can’t Let Go Of Your Possessions

The Endowment effect is the tendency for us to overvalue things we own. Here’s how to beat it.

Source: The Endowment Effect: Why You Can’t Let Go Of Your Possessions

Editor’s Note: This is a guest post by Louis Chew of Constant Renewal.

Not long ago, I tried clearing some of my possessions. It didn’t go well.

As I went through some old books and notes from school, I wondered to myself if I’d ever use them again. Deep down, I knew there was no chance I’d ever read the same books I enjoyed as a teenager. Still, I kept them. I reasoned with myself that maybe someday someone I knew would need them.

It’s safe to assume that it’s extremely unlikely that someday will ever arrive. The truth is I don’t need those books anymore. Neither did I want them anymore. Yet, I still couldn’t get rid of them. It just feels right to keep those items in my life.

I’m probably not alone in this. This thought process is something that most of us go through whenever it comes to our possessions. Some call it sentimental value. But the better answer is probably found in economics and psychology.

The Endowment Effect

In the 1970’s, psychologist Richard Thaler noticed a weird pattern.

A man who bought a bottle of wine for $5 a few years ago was offered $100 by the wine merchant to buy the bottle back. This was a fair price that the bottle would probably fetch in an auction. But the man declined to sell. When offered a chance to buy a similar bottle from the wine merchant for $100, the man also refused. The man didn’t necessarily appreciate the wine, but he was still unwilling to sell at that price.

This wasn’t an isolated incident; in fact it’s all around us. The Economist recently published an article that surveyed how much people were willing to pay for legroom in an airplane. When told they did not have an automatic right to decline, but would have to negotiate for it, the recliners were only willing to pay $12 on average for this comfort. But when asked how much they would need to be paid to give up their own legroom, they required on average of $39.

The inconsistency is revealing. Psychologists call this the Endowment effect: it’s the tendency for us to overvalue things we own. It explains why we are so unwilling to give something up once we have ownership of it.

At first, the researchers thought that this was a classic case of loss aversion, where we feel the pain of losing something more strongly than the pleasure of gaining something.

That sounds logical, but there’s a more insidious reason. Psychologists have also concluded that this overvaluation may stem from our sense of ownership itself. We value something more simply because it is ours. If we own a car, laptop, or watch of a certain model, we would similarly overvalue that same object owned by someone else because we own one ourselves.

Fighting The Endowment Effect

The Endowment Effect often goes unnoticed by us in most scenarios. What can we do then to counter this phenomenon? Here are three strategies you can apply:

Ask yourself: how much would I pay for this if I didn’t already own it? More often than not, you’ll find that the answer is nothing. If that’s the case, it’s a clear sign you value an item not because of its extrinsic or intrinsic value, but simply because of the endowment effect. 

Consider the utility of the item. How much do you really need this item? The 80-20 principle holds true for our possessions as well: 80% of the utility we get comes from 20% of the possessions we own. Is this item adding value or simply creating clutter?

Borrow and don’t own. Luxury brands often offer customers a fitting, trial, or a test of their product. We take advantage of this offer because it’s free. But what we don’t realize is that the endowment effect is already beginning to influence our decisions: we feel like we own that dress or car we’re trying out.

It’s little wonder we walk out of stores with new possessions and less money in the bank more often than we like. If you want to try out a product, borrow it from a friend. This way, the obligation to return the borrowed item will prevent you from holding onto it indefinitely.

The endowment effect takes a larger psychological toll on us than we realize. Every year, we go through the same process of cleaning and figuring out where to store our possessions. Don’t let this happen to you. Take the time to solve this problem once and for all. It’s far better to de-own than declutter.

The cost of ownership is often greater than we think. But that’s not all. The cost and value of things become great only because we own it. And the more we recognize this, the more we’ll feel the liberation of less.

***

Louis Chew blogs at Constant Renewal where he inspires others to overcome mental barriers and fears to live their best life.

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A Recommendation on Recommendations

Online consumers are inundated not only with choice, but also with recommendations. According to new research, without careful curation these recommendations can actually lower the likelihood of a purchase.

Source: A Recommendation on Recommendations

turned-on laptop

Look for a rock hammer and you also find a chisel. Look at a rain jacket and you’ll see rain pants. Look up a toy ninja sword and the ninja outfit appears below. Recommendation engines are pervasive in online retail; customers who viewed this item also bought… But does presenting a set of additional products affect whether consumers purchase what they originally sought?

In short: yes.

With colleagues Ravi Dhar from the Yale School of Management and Jennifer Savary from the University of Arizona, Yale SOM doctoral candidate Elizabeth Friedman recently investigated this question, publishing results in the Journal of Consumer Research. “Researchers [had] not yet explored whether and how the type of alternatives considered affects preference for the target option,” she writes. Nor had research examined “the psychological mechanisms underlying these effects.”

To dig into this issue, Friedman and her colleagues ran a series of experiments grounded in one general design that manipulated the context in which a product is displayed, showing suggestions or alternatives that were either similar or dissimilar to the product being viewed. In one case, for instance, participants were presented with a wireless speaker set selling for $25. Below this, two other items were labeled by a recommendation engine: “Customers Who Bought This Item Also Bought.” One group of participants saw similar items (headphones and more speakers) while the other group saw dissimilar items (two button down shirts). Participants were then asked how likely they were to buy the wireless speakers.

Similar

Across ten studies, Friedman and her colleagues ultimately found that considering dissimilar alternatives decreases intent to purchase a target option more than considering similar alternatives. This holds across a range of particulars—whether the good is hedonic or utilitarian, whether the consumer thought of alternatives or marketers presented them, and so on. By tweaking specific aspects of the experiment, they were also able to reveal that so-called “focal goals” drive this result.

Consumers set out to purchase products with a goal in mind. If they are looking for speakers, perhaps they want to upgrade their current audio setup; perhaps they want the option to play music in a room that doesn’t currently have speakers. Whatever the goal, it weighs heavily on consumer behavior. Given this context, Friedman and her coauthors found that presenting consumers with products that are dissimilar to the original target activates a competing goal, which, in turn, decreases the importance of the original goal. In the end, this leads to lower purchase rates. (The authors did find one important exception: amplifying commitment to a focal goal “shields” that goal from influence when consumers consider other products representing other goals.)

On the academic side, this work is the first to weave together two foundational, but distinct, strands of research: how people consider opportunity costs, and how goals factor into consumer decision-making. Equally important, though, are the implications for marketers. When recommending one product as a complement to another, marketers should carefully consider how purchase goals might connect the two products. Are they likely to be aligned in the mind of a consumer? If not, is there at least a clear way to amplify a purchase goal, and so shield it from adverse influence? “If the marketer’s goal is to sell a particular product,” they write, “any alternatives present in the choice environment should serve the same goal as the target option.”

 

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What makes things cool? – Caleb Warren 

We all recognize cool people and products when we see them, but what is it that makes something cool? Caleb Warren uses an experimental approach to uncover how people, products, brands, art, and behaviors come to be seen as cool. Caleb Warren is an assistant professor in the Marketing Department at the University of Arizona. He studies what makes things funny and what makes things cool.

 

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The status symbols we buy, wear, and drive make people want to do business with us — but not be our friends

That BMW isn’t earning you any pals.Angela Weiss/Getty Images for Icelink

Source: The status symbols we buy, wear, and drive make people want to do business with us — but not be our friends

Shana Lebowitz, Business Insider

  • New friends may be turned off by status symbols like fancy cars, watches, and clothing.
  • Business contacts may find those same status symbols appealing.
  • Still, people tend to assume that sporting posh accessories will make them universally appealing,
  • That’s according to a new scientific paper published in the journal Social Psychological and Personality Science.

Here’s a tip for anyone having a hard time making new friends: Ditch the Rolex. Or, at least, put it aside until your next work meeting.

That’s according to a new paper published in the journal Social Psychological and Personality Science. Results from a series of studies showed that status symbols — think a Tag Heuer watch — can repel friends, even while they attract business contacts.

The researchers call it the “status signals paradox,” because participants in the studies incorrectly assumed that their fancy accessories would make them more appealing to potential friends.

In one study, university students were asked which of two people they’d prefer to have a “get-to-know-you” conversation with. Participants were less willing to choose a New Jersey native who was interested in hiking, running, and concerts when that person had a BMW and a Canada Goose jacket than when they had a Honda and a Gerry jacket.

Another study illustrates the importance of context.

Adult participants were asked to imagine attending a wedding where they were hoping to make either new friends or new business contacts. In both contexts, most participants said they would drive a luxury car (as opposed to a basic car) to appeal to others. But people were more likely to want business contacts who drove a luxury car than friends who drove a luxury car.

“At a societal level, we may be wasting billions of dollars on expensive status symbols that ultimately keep others from wanting to associate with us,” study co-author Kimberlee Weaver Livnat, at the University of Haifa, said in a statement.

Previous research has found that designer labels can make people seem wealthier and higher-status. In a 2011 study published in the journal Evolution and Human Behavior, participants were more likely to select hypothetical job applicants wearing a shirt with a brand-name logo than a shirt without a logo.

Meanwhile, Business Insider’s Dennis Green reported on the benefits of “dressing for success.” One 2014 study, published in the Journal of Experimental Psychology, found that men wearing suits earned more money in mock negotiations than men dressed neutrally or in sweatpants.

Bottom line: When you’re meeting with a potential client, feel free to bust out the bling. But when you’re trying to forge a new friendship, stick to the basics.

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Forget shiny Rolexes and Louis Vuitton handbags — rich people are investing more in education and health, and it shows that discreet wealth is the new status symbol

Is flaunting Lamborghinis, Rolexes, and diamonds a thing of the past for the rich? Showing off wealth is no longer the way to signify you have it.

The wealthy are showing off their riches less. Alan Crowhurst/Getty Images

Source: Forget shiny Rolexes and Louis Vuitton handbags — rich people are investing more in education and health, and it shows that discreet wealth is the new status symbol

Hillary Hoffower, Business Insider

  • Long synonymous with dripping diamonds, flashy Lamborghinis, and shiny Rolexes, rich people are being more discreet about their money.
  • Showing off wealth is no longer the way to signify having wealth.
  • Investing in things like education and health helps the rich propel social mobility and gain access to what the middle class cannot.

Owning a Louis Vuitton handbag, a multimillion-dollar Bugatti, or a shiny Rolex has typically been a marker of elite status.

But such flashiness is becoming less ubiquitous among the ultra-high-net-worth crowd. They’re spending more than ever before on security and privacy, trading in hilltop houses for homes in neighborhoods hidden from Google Street View.

And in an era where mass consumption means both the upper class and the middle class can own the same luxury brand, the rich are forgoing material goods to invest in immaterial means as a way to signify status. It’s what Elizabeth Currid-Halkett calls “inconspicuous consumption” in her book “The Sum of Small Things: A Theory of an Aspirational Class.”

It’s the opposite of “conspicuous consumption,” a term conceived of by Thorstein Veblen in “The Theory of the Leisure Class” referring to the concept of using material items to signify social status — a hallmark of previous elite spending, Currid-Halkett wrote in an article last year.

A flashy display like a luxury handbag no longer signifies wealth the way it used to.Anke Grelik/Getty Images

Essentially, showing off wealth is no longer the way to signify having wealth. In the US particularly, the top 1% have been spending less on material goods since 2007, Currid-Halkett wrote, citing data from the US Consumer Expenditure Survey.

It’s a growing trend among not only millionaires and billionaires, but what Currid-Halkett calls “the aspirational class.”

“This new elite cements its status through prizing knowledge and building cultural capital, not to mention the spending habits that go with it,” Currid-Halkett wrote, adding, “Eschewing an overt materialism, the rich are investing significantly more in education, retirement, and health — all of which are immaterial, yet cost many times more than any handbag a middle-income consumer might buy.”

Investing in education propels social mobility

That inconspicuous consumption often goes unnoticed by the middle class but noticed by a fellow elite is what makes it so discreet. Currid-Halkett described it as a shorthand for the elite to “signal their cultural capital” to each other and cement status. It “reproduces privilege” in a way that flaunting luxury couldn’t, she said.

Displaying knowledge, such as referring to New Yorker articles, expresses this cultural capital, giving a person leverage to climb the social ladder and make connections, Currid-Halkett wrote.

“In short, inconspicuous consumption confers social mobility,” she said.

yaleInvesting in a top-notch education is one way the rich are showing off their wealth.Maddie Meyer/Getty Images

J.C. Pan of The New Republic described how parents try to reproduce their class position for their children: “They buy their kids boutique healthcare, take them on enriching trips to the Galápagos, and — most importantly — equip them with every educational advantage, from high-end preschools to SAT tutors to Ivy League tuition. In 2014, the top 1% spent 860% more than the national average on education.”

Just consider the rich families who are spending millions to live within walking distance of the country’s best public elementary and secondary schools, or those paying as much as $60,000 for a college tour via private jet — they make such an investment in education in hopes of setting their children up for a successful, well-connected future.

And often, the parents invest in their own knowledge and achievement by working all the time, another modern way of signifying status, Business Insider’s Shana Lebowitz reported.

As Currid-Halkett put it: “For today’s aspirational class, inconspicuous consumption choices secure and preserve social status, even if they do not necessarily display it.”

Health and wellness also signify status

Vogue reported in 2015 that health and wellness had become a luxury status symbol, and it makes sense.

And in an analysis last year, the Financial Times columnist Simon Kuper wrote that “the cultural elite spends relatively little on beauty products, but splurges on exercise, because it thinks that bodies (like food) should look natural.”

“The thin, toned body expresses this class’s worldview: Even leisure must be productive,” Kuper continued. “Instead of trawling shopping malls, class members narrate their family hikes on Facebook.”

The wealthy are investing in health, including pricey memberships at gyms like Equinox, to indicate status.Equinox Facebook

Some well-off New Yorkers pay up to $900 a month for a membership at Manhattan’s Performix House, an elite gym with a rigorous application process, a private entrance, and a content studio for social-media influencers.

It’s the same feeling evoked by stepping out of a $30 SoulCycle spin class to buy a $10 green juice, or having a $200-plus membership to one of the nation’s swankiest gym chains, Equinox, which even offers a $26,000 ultra-exclusive membership for the traveling mogul.

“It’s like the only acceptable lifestyle brag,” a spin enthusiast told Vogue. “You are a douche if you brag about your car or how much money you make, but bragging about how much you spin is normal, though still very annoying.”

 

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Best Christmas ads 2018: Watch Google’s amazing Home Alone Again and more

Watch Macaulay Culkin revisit his glory days in the Google Home ad, plus many more excellent festive commercials.

Source: Best Christmas ads 2018: Watch Google’s amazing Home Alone Again and more

    

We thought we’d seen the all the Christmas adverts this year already, with only a few days left until the big day itself. However, Google has arrived late to the party with what could be the best of them all.

Its Home Alone Again commercial, posted on YouTube, is quite simply brilliant. It brings Kevin McAllister (Macaulay Culkin) back for a modern retake on the classic Christmas movie – one of our favourites of all time.

You can watch it below, along with a selection of the best Christmas adverts that have appeared on UK TVs or online during the 2018 festive period.

Google: Home Alone Again

Imagine what Kevin McAllister’s Home Alone experience would have been like with a Google Home digital assistant.

It must also be said that Macaulay Culkin is looking great these days. Would be good to see him more active on TV or film in 2019.

John Lewis: The Boy and the Piano

You might be a bit sick of it by now, and it’s no patch on former years’ efforts, but the 2018 John Lewis Christmas ad is still one of the best around.

We’re not convinced many small kids will be getting pianos this year though.

Twitter: #NotARetailStore

While you can watch the actual John Lewis advert above, spare a moment for the real John Lewis who is regularly inundated on Twitter by confused customers.

Twitter brilliantly captured this in its own festive advert this year.

Waitrose: Fast Forward

Another great John Lewis spoof comes from one of the retailer’s own brand partners, Waitrose.

It apes a lot of family’s thoughts on the annual unveiling of the JL Christmas ad.

Aldi: Kevin the Carrot and the Wicked Parsnip

Aldi went all out with its Kevin the Carrot Christmas adverts this year, with several reimagined fairy tales featuring an evil parsnip.

This is our fave, not least for the punchline.

Sainsbury’s: The Big Night

Sainsbury’s went with the tried and trusted children’s Christmas play for its 2018 commercial.

Here, you can see a much longer version than the one aired on TV. We still like the bit with the plug.

Iceland: Say Hello to Rang-tan

You won’t have seen this Iceland advert on British TV this Christmas as it was banned for being too political.

However, it is a great commercial with a good message that’s well worth a watch.

Apple: Share your Gifts

To highlight the creative applications possible with Apple devices, it made a wonderfully animated short film about a girl afraid to show others her work.

The much longer version than shown on TV is available above.

McDonald’s: Reindeer Ready

As a follow up to last year’s McDonald’s ad, the 2018 version now features Santa treating his own herd to the fast food chain’s “Reindeer Treats”.

To be honest, they’d probably have preferred Big Macs.

Visa: Keep it Local this Christmas

Finally, another good message, this time from Visa.

With online shopping and Christmas deliveries being easier than ever, don’t forget the humble high street shop keeper who relies on your custom – especially at this time of year.

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Touching sandpaper can make you more generous

How SANDPAPER can make you more generous: The feeling of rough surfaces boosts empathy and charitableness

  • Asking people to touch a rough surface can make them more empathetic
  • Researchers primed study participants and monitored their responses
  • Those who held rough surfaces were more willing to donate to charity
  • The findings could help smaller charities trying to raise their profile and boost donations, by including rough textures in their mailing materials

Researchers at Drexel University in Philadelphia found that asking people to touch a rough surface, such as sandpaper, can make them more empathetic and more likely to donate money.

Source: Touching sandpaper can make you more generous

By RYAN O’HARE FOR MAILONLINE

When it comes to securing donations, rather than opting for charm, charities might be better off taking a more abrasive approach and aim to rub the public the wrong way.

Asking people to touch a rough surface, such as sandpaper, can make them more empathetic and more likely to donate money.

The findings come from a study in which researchers found that feeling mild discomfort from rough surfaces helps people to become more aware of the plight of those in less fortunate circumstances.

‘We found that when people were experiencing mild discomfort as a result of touching a rough surface, they were more aware of discomfort in their immediate environment,’ said Dr Chen Wang, an assistant marketing professor at Drexel University in Philadelphia and lead author.

Dr Wang added: ‘They could better empathize with individuals who were suffering.’

Over the course of a number of experiments participants were asked to view either ‘painful’ or ‘neutral’ images while holding an object which either wrapped in rough or smooth paper.

Scans of their brain activity showed a peak in activity with the rough stimulus, compared with the smooth surface.

The researchers explain that the findings could help smaller charities trying to raise their profile and boost donations (illustrated, stock image), just by including rough materials in their mailing materials
The researchers explain that the findings could help smaller charities trying to raise their profile and boost donations, just by including rough materials in their mailing materials.

A separate experiment involved participants washing their hands with rough or smooth soap.

Following this task, people were asked how willing they were to donate to a charity for Sjogren’s syndrome – an autoimmune condition in which the body attacks the glands which produce tears and saliva.

The results showed that those who had used the rough hand soap were more willing to donate to the charity.

However, while this effect was seen for a niche charity, it wasn’t seen for the more mainstream non-profit organisations.

By using psychological priming – where people are exposed to a stimulus, such as a cold object, or a rough surface – the team was able to boost people’s awareness, which opened the door for increase empathy.

The researchers explain that the findings could help smaller charities trying to raise their profile and boost donations, just by including rough materials in their mailing materials.

‘The goal of our work is to make a social impact,’ said Dr Wang.

‘It’s critical to identify novel approaches to meet the massive humanitarian needs in our complex, modern world, and I hope we have done that.’

Writing in the Journal of Consumer Psychology, the authors explained: ‘These findings not only underscore the power of subtle contextual cues on shaping important behaviors, but also point to the possibility of developing novel intervention strategies for promoting empathy and pro-sociality.’

The physical priming of people has long been shown to be an effective tool in psychology experiments.

In a famous 2008 experiment, researchers at Yale showed that temperature could be used to prime people’s judgement of others, linking physical and psychological warmth.

After priming participants with rough hand soap, people were asked how willing they were to donate to a charity for Sjogren's syndrome - an autoimmune condition in which the body attacks the glands which produce tears (stock image) and saliva - and were more willing to donate to the charity

After priming participants with rough hand soap, people were asked how willing they were to donate to a charity for Sjogren’s syndrome – an autoimmune condition in which the body attacks the glands which produce tears (stock image) and saliva – and were more willing to donate to the charity

By asking study participants to briefly hold a warm or an iced coffee, experimenters primed their subjects without their knowledge.

In a subsequent trial, those who had been primed with the physical warmth of the coffee judged a target person as having a ‘warmer’ personality than those who had been primed with the cold drink.

A second trial showed that those who had been primed with physical warmth were also more likely to give a gift to a friend rather than keep it for themselves.

While the physical effect is powerful, priming can also be achieved by simple picture and word association.

For instance, simply by displaying images of food items participants are more likely to fill in the blank in ‘so_p’ to make ‘soup’.

But when the same word is displayed surrounded by bathroom items, such as shower gel, a person is primed to think of personal cleaning products,  and so will more likely complete the word as ‘soap’.

 

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