Monday, July 20, 2009

How Endowed?

I’m back now and ready to write a bit more about the endowment effect. To recap, this is a well-known, potent mechanism wherein people come to value things they already have more than they would value them if they did not have them. It applies to anything but I’m applying it to romantic relationships.

Let’s focus on the downside of this. As I noted in the prior post, the upside of this is that, in good marriages, this effect adds to the total forces of commitment that help you keep on doing what you promised to do—in ways that benefit you, your family, and your children. On the other hand, let’s think about all the relationships, like dating relationships, where some people get stuck with a not very good thing.

What the endowment effect means, in part, is that it’s easy to be biased in thinking that what you have is better than it is. Don’t get me wrong. If what you have is really good and maybe has a wonderful future, nothing I or anyone else is going to write or say will change your mind about it. In fact, don’t give it another thought. But think about a person who’s hanging around and dating someone who’s really not very good for them. It could be that the partner is just not the right type of person or even that they are dangerous in some way. Sometimes people overlook things that really do matter in terms of how their future could turn out as a couple. What might one overlook?

• Drug addiction or abuse
• A lack of a desire to have children when you know that you really want to have children sometime
• Differences in religious beliefs that you think don’t matter but you kind of know it might in the future
• Problems being responsible with money
• Completely different desires for how to spend free time

These are just a few of the types of things that relate to long-term happiness together that some people try very hard to believe just won’t matter. By the way, it’s possible that you are reading this and you realize that you are the one who brings more problems to your relationship and that maybe it’s your partner who should be thinking carefully about you. If that sounds like you, problems in your own life are things that you can work on. It’s possible to change. There are a lot of ways to get help, including religious organizations, community agencies, community mental health centers, jobs services, so forth.

Back to my main point: The endowment effect works on most everyone, and when you are in a relationship that has little chance of a solid future, it can be just one of the factors that makes it hard to get an accurate picture of what your future really would be if you married this person. Does the relationship have real value or is it just a mirage?

Safety note: It’s possible that someone who reads this is in a relationship that is dangerous. If you are in a relationship with someone who can be dangerous or who is highly controlling, you should know that the time one leaves such a relationship can be a particularly dangerous time. If that’s you and you are thinking through your options, find a way to make contact with local or national domestic violence workers who know how to help people increase their chances of staying safe. The national hotline number is: 1-800-799-SAFE(7233)


Friday, July 3, 2009

Well Endowed: The Endowment Effect

Okay, that’s a bit of a misleading title for this post, but I am going to say some things today about the Endowment Effect.

First off, a definition: The Endowment Effect is psychological effect discovered by research psychologists and behavioral economists. It reflects the now well-proven fact that people place a greater value on a thing they already own than they would if they did not own that thing and had to buy it.

Kahneman, Knetsch and Thaler studied this effect in this way. What they did is give some participants in a study a mug—yes, like a coffee mug. They did not give other participants a mug. Then, they simply examined how much the people with the mugs would be willing to sell them for (around $7) and compared that to how much the people without mugs were willing to pay for one (around $3). The interesting thing here is that these participants only differed in whether or not they happened to be given a free coffee cup. But once owned, they want more to part with it then they’d have been willing to pay for it in the first place. Quite a bit more, in fact. There are now many studies that show this same phenomena in all sorts of ways.

Psychologist Daniel Kahneman would relate this to his brilliant work with Amos Tversky that showed, in many ways, that people are more motivated to avoid loss than to attain gain. (I say “brilliant” because, after all, they do reflect my own chosen discipline of psychology. Other than that, I’m sure I have no biases, endowment or otherwise.)

Economist Richard Thaler also named this effect the “status quo bias,” because it reflects the fact that it favors keeping what you already have. By the way, this goes a long, long way toward describing why some people do so poorly when they have a garage sale. They are just too attached to their junk. Those who come by are judging from a different standpoint, one that is closer to the real market value of the stuff. (I personally believe that the main purpose of a garage sale is not to make money but to get other nice people to come to your house and carry away all your junk.)

There are some tricky implications for romantic relationships here. For example, for the average pretty good to great marriage, the Endowment Effect helps you stick to their commitment when times are a bit tougher because you so highly value what you already have. And you should, because you’ve invested a lot and what you invested would result in a lot of loss if you don’t stick. If you are married, have built a life together, have children, and all sorts of other things, you are, so to speak, very well endowed.

On the other hand, what if you are dating and trying to find the right person to spend your life with? This Endowment Effect also means that you can easily get too settled with a current partner who’s not really a good long-term fit, and not move on when maybe you should.

I’ll go a bit deeper on some of the implications in my next post. I have a very busy week coming up, so it may be a bit more than a week before I get back to you. But I will be back!