Editor’s Note: This is a guest post by Louis Chew of Constant Renewal.
Not long ago, I tried clearing some of my possessions. It didn’t go well.
As I went through some old books and notes from school, I wondered to myself if I’d ever use them again. Deep down, I knew there was no chance I’d ever read the same books I enjoyed as a teenager. Still, I kept them. I reasoned with myself that maybe someday someone I knew would need them.
It’s safe to assume that it’s extremely unlikely that someday will ever arrive. The truth is I don’t need those books anymore. Neither did I want them anymore. Yet, I still couldn’t get rid of them. It just feels right to keep those items in my life.
I’m probably not alone in this. This thought process is something that most of us go through whenever it comes to our possessions. Some call it sentimental value. But the better answer is probably found in economics and psychology.
The Endowment Effect
In the 1970’s, psychologist Richard Thaler noticed a weird pattern.
A man who bought a bottle of wine for $5 a few years ago was offered $100 by the wine merchant to buy the bottle back. This was a fair price that the bottle would probably fetch in an auction. But the man declined to sell. When offered a chance to buy a similar bottle from the wine merchant for $100, the man also refused. The man didn’t necessarily appreciate the wine, but he was still unwilling to sell at that price.
This wasn’t an isolated incident; in fact it’s all around us. The Economist recently published an article that surveyed how much people were willing to pay for legroom in an airplane. When told they did not have an automatic right to decline, but would have to negotiate for it, the recliners were only willing to pay $12 on average for this comfort. But when asked how much they would need to be paid to give up their own legroom, they required on average of $39.
The inconsistency is revealing. Psychologists call this the Endowment effect: it’s the tendency for us to overvalue things we own. It explains why we are so unwilling to give something up once we have ownership of it.
At first, the researchers thought that this was a classic case of loss aversion, where we feel the pain of losing something more strongly than the pleasure of gaining something.
That sounds logical, but there’s a more insidious reason. Psychologists have also concluded that this overvaluation may stem from our sense of ownership itself. We value something more simply because it is ours. If we own a car, laptop, or watch of a certain model, we would similarly overvalue that same object owned by someone else because we own one ourselves.
Fighting The Endowment Effect
The Endowment Effect often goes unnoticed by us in most scenarios. What can we do then to counter this phenomenon? Here are three strategies you can apply:
Ask yourself: how much would I pay for this if I didn’t already own it? More often than not, you’ll find that the answer is nothing. If that’s the case, it’s a clear sign you value an item not because of its extrinsic or intrinsic value, but simply because of the endowment effect.
Consider the utility of the item. How much do you really need this item? The 80-20 principle holds true for our possessions as well: 80% of the utility we get comes from 20% of the possessions we own. Is this item adding value or simply creating clutter?
Borrow and don’t own. Luxury brands often offer customers a fitting, trial, or a test of their product. We take advantage of this offer because it’s free. But what we don’t realize is that the endowment effect is already beginning to influence our decisions: we feel like we own that dress or car we’re trying out.
It’s little wonder we walk out of stores with new possessions and less money in the bank more often than we like. If you want to try out a product, borrow it from a friend. This way, the obligation to return the borrowed item will prevent you from holding onto it indefinitely.
The endowment effect takes a larger psychological toll on us than we realize. Every year, we go through the same process of cleaning and figuring out where to store our possessions. Don’t let this happen to you. Take the time to solve this problem once and for all. It’s far better to de-own than declutter.
The cost of ownership is often greater than we think. But that’s not all. The cost and value of things become great only because we own it. And the more we recognize this, the more we’ll feel the liberation of less.
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Louis Chew blogs at Constant Renewal where he inspires others to overcome mental barriers and fears to live their best life.
Have too much clutter. It’s going gradually. When people asked me what I wanted for Xmas/birthday I said something invisible or disposable. Bought nice soap and food which will soon go.
I’m letting go of lots of stuff too. I realize I have too much and honestly my kids don’t want it….so I’m selling what I can….realizing also in some cases I’ll never see what I paid. This is a ‘sunk’ cost.
My benefit will be to use this money for something I will really want.. .like a vacation or another guitar lol.
Really useful article thank you. I have been a collector all my life and am now letting things go but it is so hard! It’s not always the intrinsic value any more or trying to get what I think it’s worth. There is a deeper emotional connection. The fact that I have ‘rescued’ ephemeral items that would otherwise have been lost creates a burden of custodianship. They might be just C19th newspapers or leaflets or collectables but I wonder who bought them or held them? What were they wearing? What was their life like? I simply cannot just dump them and won’t let them go to anyone who doesn’t appreciate them as much as I do. I have an emotional block and so procrastinate and put them back for another time. Answers on an ( antique) postcard please!✉️
Hi. I understand. I rescue things all the time and try to sell. My garage and house is now overflowing. What I am doing this year is giving antiques that will not sell to a small museum in my small town. This way I know they will be kept and new generations will enjoy them. I was looking for a new revenue and I think I just created more clutter and spend hard earned money. NostalgiaSue! Yep that’s me lol
Sooooo true!
I’m trying to declutter our home whereas my husband struggles to let go anything that’s HIS.
He was given some cheap chocolates for Christmas and we both agreed they tasted awful and smelt vile. I mentioned I’d throw them in the green bin. He responded, “ they’re MY chocolates, they were given to ME, I’ll throw them out”
They’re still sitting on the bench and he’ll probably eat them anyway, just because haha
The struggle is so real
Great article, thank you
“Neither borrower nor lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.” Shakespeare
Interesting article. I disagree with the “borrow the product from a friend” idea though. It’s the first step to losing friends. I wouldn’t want my friends to ask me for things, and I would never ask them. Too much room for trouble if the things aren’t returned, are returned in poor condition, etc.
I agree!
100% agree with you
Don’t borrow from a friend
“Neither borrower nor lender be, for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.” Shakespeare
I agree with this. Once I asked a friend to borrow her carpet cleaner. When she said ‘NO’, I bought my own. And use it frequently. Also would not want to loan it out.
Also… I once borrowed a small kitchen utensil from a friend. When using it, noticed it was cracked. So I replaced it with a new one and also bought one for myself. Cost me double. Should have just bought my own.
There’s an app for this actually. Borrowing for a certain amount of time for a cost.
I love it when I can share things with friends. I think that the concept of not sharing is simply a product of a society that values growth (GDP) over the well being of human beings. If we don’t share, they can sell more stuff. The earth cannot sustain never ending growth. I frankly believe that we are capable of being healthier and happier with negative growth. Most people that I know are in the struggle of “rugged individualism”. As a result, they don’t even have time to share. When we do get together, they are stressed, pre-occupied and not really present. Wasting this time is a lot worse than breaking an electric drill in my book.
Are you going to be on the committee that decides who gets to have children and who doesn’t?
Totally agree
I think this depends on what the item in question is. A lot of purchases can be avoided just by asking people’s opinion of the one they own. I certainly wouldn’t mind lending a vacuum cleaner to a friend for a few days. Even a new tool. But, we all have an unspoken rule of ethics. “It comes back in the same condition it left in”. On the other hand,there a things I wouldn’t let ANYONE borrow!
I was a borderline hoarder before I had to leave my cluttered home with just 2 suitcases and one small plastic container. I moved into a tiny apartment with my daughter. I suddenly realized that I had brought everything I had really needed with me. I later went back to that house to get more “things” and realized I didn’t need anything more. I am so much more at peace with less, and a convert to the minimalist lifestyle. I’ll never go back.
Awesome! I had a similar experience. I moved to do an Airbnb for 30 days. Then a different Airbnb for 30 days. And a different one for 30 days. It was a really eye-opening experience. I was able to move with seven Trader Joe canvas bags, printer, computer screen, and hanging clothes. (I need the hanging clothes for my job.)
I had a flood that destroyed most of my belongings during Hurricane Ike. I really don’t remember what most of it was. It totally broke my dependence on “stuff”.
When I do a cleanout, I do it like this: If I saw this at Goodwill today, would I buy it? If the answer is No, then it goes to the Charity box!
Yep. My question is “ if this was £1 in a charity shop, would I buy it”?
It is a spurious line of reasoning because the value of a cherished and long-owned item cannot be simply expressed by a monetary or exchange value.
Should article say “ automatic right to _recline_”? (It says ‘decline’)
Most of my books are the one I read and re – read and
Own.
I like to have my own copy at the store .
“Ask yourself: how much would I pay for this if I didn’t already own it?” – That is a great question to add to my self-talk when I am cutting down.
It is a spurious line of reasoning because the value of a cherished and long-owned item cannot be simply expressed by a monetary or exchange value.
This is my biggest block to really paring down. I’ve reduced a great deal and donated a lot of decent stuff! But there’s emotional stuff that’s hard to release.