I’ve been helping my mom move in to her new house over the past week or so. And it’s been a tiring but surprisingly enjoyable activity. We’ve managed to get rid of a lot of junk and reminisce through old photos and other memories.
One thing that I have noticed repeatedly is a strong endowment effect whenever we’re deciding whether to keep something or donate/throw it away. The endowment effect is a theory from behavioural economics that says that people value things much more highly when they own them.
The term was developed by nobel prize winning behavioural economists Daniel Kahneman and Richard Thaler. As per the wikipedia page:
[In the study] participants were given a mug and then offered the chance to sell it or trade it for an equally valued alternative (pens). They found that the amount participants required as compensation for the mug once their ownership of the mug had been established (“willingness to accept”) was approximately twice as high as the amount they were willing to pay to acquire the mug (“willingness to pay”).
And so, there is a lot of stuff we have come across while moving house that we way over value. These are mostly things that have either:
- Have a low replacement value
- Will never be used again
- Would not be purchased again.
The Endowment Salesman
To get around this bias, I’ve come up with a fairly simple system. And I use it when I find that we’re trying to keep something that fits into one of the three points above.
All I do is tell my mom that if she wants to keep it she has to buy it off me. And any money that is made will be donated. Additionally, I set the price slightly higher than it would be at the shops.
So for example, my mom was trying to decide whether to keep a branded set of glasses she was given at an event. She was very ready to put them back in the cupboard. So I grabbed them from her and said that I’d sell it to her for R80. Otherwise we must get rid of them.
And she said that it wasn’t worth it to buy them.
So we donated them and now have less clutter.
By doing this, I take away the ownership aspect which causes the endowment effect. It is no longer your item. It has been donated by default and you need to buy it back. Additionally, by setting a high replacement cost, it means that the item must be worth more than just it’s replacement value (e.g. if it has some unbelievably special memories attached to it).
And hence, we’re able to get around our biases and achieve a much more streamlined life.
Image is of the boxes we unpacked today. We managed to get the contents of the three boxes on the left there down to just one of the small boxes on the right
Song of the day: Black Betty – Ram Jam