Letting-Go Economics

Did you jump into marriage without a thought? Had not a single doubt? Saw no difference between saying I Do to a lifetime of monogamy and saying it to a shoe salesman?

If so, stop reading.

If not, if you’re like the other 99.9% of humanity who had a reasonable ounce of terror before walking down the aisle, then read on.

It’s tough letting go of things–favorite albums, childhood homes, the single life. Any change, no matter how exciting, can feel like a loss.

People hate to lose. It’s called loss aversion, and behavioral economists will talk your ear off about it. I talked about it in our book, specifically about an old chair my husband pressured me to get rid of when we moved in together. It was my La-Z-Boy. Here I am, talking about it in the third person:

Paula loved that chair. She’d owned it for nearly a decade and she’d dragged it with her every time she moved apartments. She’d cuddled in it with her bipolar cat before she had to give him up for adoption for being too bipolar. She sat in it listening to depressing Joni Mitchell songs after a long, drawn-out breakup. That chair wasn’t just a chair; it was a trusted friend. Upholstered in a soft, worn-in, mud-brown velour, it had great lumbar support and a foot rest. It was the most comfortable seat in the house. How could anyone think otherwise?

Apparently, Nivi could. When he looked at the chair, he didn’t see good ergonomics or the warm patina of lost youth. He saw an ugly, frayed, cat-piss stained eyesore in the middle of his living room. He said Paula was overly sentimental about her possessions and that her love for the chair was “crazy.” He said that every time he looked at it, he cringed. He said it made him unhappy.

Is my husband evil? Yes. Was I suffering from loss aversion, and a related affliction called the endowment effect? Yes to that, too.

Paula was suffering from something economists call the endowment effect, in which we put an irrationally high value on our own stuff. It’s a behavioral quirk that stems from our aversion to loss—when something is ours, we endow it with more meaning than things we don’t own.

The endowment effect is why we’ll charge $5—no negotiations!—for a used economics textbook at our yard sale, but we won’t pay a penny more than $2 for the same textbook at a yard sale down the block. It’s why we believe our house is worth $420,000, but we think our neighbor is batshit if she thinks she can get more than $320,000 for hers. It’s why mail-order companies offer free shipping for returned merchandise—they know once you’ve tried on that pirate costume, the odds are you won’t want to give it back….

In Paula’s case, it wasn’t just that she loved the chair—it was that she couldn’t stand the pain of losing the chair. Losing it meant losing everything the chair had come to symbolize: her independent single days, her freedom to buy what she wanted, decorate how she wanted, and sit around doing nothing all day without having to consider the needs of someone else. The endowment effect pulls back the curtain on how very badly we don’t want to lose things. Or money. Or people. Or times in our lives.

So anyway, I was pleased to receive an email from my mother today with a link to a story in the Association for Psychological Science’s Observer about a woman named Laurie Santos. Santos, who has the enviable title of director of the Comparative Cognition Laboratory at Yale University, has studied the endowment effect in Capuchin monkeys. (I love those monkeys, by the way–they do EVERYTHING we do, but are way cuter.) Turns out, these monkeys also hate to let go just as bad as we do, which means all this might be innate–and that furthermore, if you believe what the evolution guys say, then somehow, some way, loss aversion and the endowment effect, actually serve a purpose.

Or, as the article says:

Another possibility is that biases like the endowment effect were highly adaptive in pre-linguistic, lawless environments. “In modern Western societies, if someone fails to keep up their end of the bargain, we engage the police and the legal system,” says psychologist Sarah Brosnan of Georgia State University, who has found evidence of the endowment effect in apes. “That isn’t possible for non-verbal species. Thus it was likely almost always more advantageous for individuals to hold on to what they had than to take a chance for something better.”

Moral of the story: I should never have given up that La-Z-Boy.

Photo from Flickr user hannahstoneman.

Posted in loss aversion, trade offs

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