The Homa Files

Excerpted from Predictably Irrational,  Dan Ariely, HarperCollins Books, 2008

“Ownership changes perspective … . once we own something — we fall on with it — and we value it more than other people do.”.

[In technical terms, It’s called the “endowment effect” … owned items accrue “emotional equity”]

Examples:

“Social price premium“: Fans holding hot tickets to a big game often require multiples of what buyers are willing to pay to part with the tickets. In effect, owners are pricing in the social value of ownership/ 

“IKEA effect“: The more “sweat equity” someone puts into something, the more ownership they feel for it. 

“Virtual ownership“: Online auctions make people begin to feel ownership before it’s consummated.  The bidding process itself creates some sense of virtual ownership … so that bidders tend to overbid to avoid “losing” the item. 

Trial periods: Companies comfortably offer 30 day money back guarantees knowing that most people will quickly develop a sense of ownership and attachment … and be reluctant to return items. 

Stubbornness: People who hold deep convictions – from  politics to sports teams — suffer from ownership blindness.  They began to overvalue their ideas, and tend to be rigid and unyielding.

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Bottom line: Always try to do transactions — especially big ones — is if you were a non-owner.  Stay dispassionate.

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This entry was posted on September 11, 2008 at 6:19 am and is filed under Economics, Mktg - General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.