If you’ve ever felt overly possessive about your regular parking space, a pair of shoes, or your collection of Harry Potter DVDs, then you are experiencing the psychology of ownership. These items are likely the same as many others available, but they are special to you in some way, because they are yours. The endowment effect is the psychological phenomenon of people giving more value to things simply because they own them.

The endowment effect is the reason things reach a higher price at auctions, as people become attached to the thing they are bidding for, experiencing a premature sense of ownership that pushes them to bid more than they would otherwise. It is also why car dealers want you to test drive the car, so you can think what it would be like to own it. Even imagining ownership can increase the value you give to something.

If you think about an item you own, something you’ve considered giving away or selling, chances are you’ve experienced the endowment effect and have placed a price or value on the item well over what someone else would give for it. This effect of psychological ownership may be stopping you from letting go of lots of things you own, stuff which may actually be cluttering your life, and your mind.

Say for instance you’ve decided to clean out your spare room or garage. You go through things one by one and try to make a decision what to do with each item, asking yourself “should I let this item go from my life?”. At this point the endowment effect kicks in and you make up all kinds of reasons why you should keep it, based on a mistaken estimate of how valuable it is. After hours of moving stuff around you have kept everything, including the box of staples (because they are useful), the 5 year old birthday card (because it has a thoughtful message), and the random computer cable (because it looks expensive).

Alternatively, now you know about the endowment effect, you can ask yourself a simple question; “If I didn’t have this item, how much effort would I put in to obtain it?” If the answer is not a lot, then overcome the endowment effect and give the item away, or give it a reasonable price tag to sell it. This works on decluttering emails you receive as well. If someone sends you a link or attachment to something you ‘must see’, ask yourself “If I hadn’t just been sent this, how hard would I try to find out this information for myself?”. Then delete the email, because you didn’t want that information before the email was received, so it’s unlikely you really want or value it now.

Credits

Stafford, T. (2012). Why we love to hoard. BBC online.

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias. Journal of Economic Perspectives.