A few years ago I decided that I really wanted a fancy new camera so I could properly indulge my budding interest in photography. Problem was, I didn’t have the cash. But what I did have was a closet literally full of old games I hadn’t played in years and would probably never play again. I think you can guess where this is going.
At first, I was extremely disappointed in eBay auctions I set up. When I set minimum reserve 1 the games didn’t sell and when I didn’t set reserves I got what I considered paltry sums. Why wasn’t anyone willing to pay what this stuff was worth to me? The fools! Many a person trading used games to places like GameStop probably ask the same question: how come it never seems like they offer a fair price?
The reason, I eventually remembered, has to do with what’s called “the endowment effect.” Basically this bias in puny human thinking leads us to over value something literally the second we consider it to be ours. Richard Thaler elegantly illustrated this phenomenon in an experiment involving coffee cups.
One group of Thaler’s subjects was shown coffee cups and asked, “Hey, what would you pay for one of these babies?” A second group was actually given the coffee cups and then asked “Hey, how much would it take for me to buy that coffee cup off you?” The average dollar values from each group were WAY different, with the folks who had been given cups saying that their cups were worth a lot more. In other words, they demanded more to relinquish the cups than they would have been willing to spend on procuring them in the first place. Totally irrational.
Behavioral Economist Dan Ariely provides a more elaborate but cooler demonstration of the endowment effect through an experiment involving students and highly coveted tickets to Duke University basketball games. When Duke’s fervor over its basketball team outstrips the supply of tickets, they are often given out according to a random lottery. One season Ariely contacted those who had won the right to tickets from the lottery and asked how much to buy them. Similarly, he contacted those students who had lost the lottery and asked them how much they’d be willing to pay for tickets if he could find a seller.
Those who had won the lottery demanded an amazing average price of $1,400, while those who did not have tickets offered to pay only an average of $170 to get them. Woah. Endowment effect indeed. Which group do you think is playing the part of GameStop in this example?
Hey, look, you can even watch Ariely explain it himself in this little video:
Done? Okay. There’s more to this phenomenon, though, because other research has shown that the endowment effect is rooted in something deeper: that the object has significance. Let’s go back to my rapidly diminishing game collection. After realizing that I had to overcome the endowment effect, I started pricing things to move. There were, however, some games that I simply could not bring myself to reduce my prices on. These were watershed games in my time with the hobby: Baldur’s Gate II, Half-Life, Quake III, NOLF, Planescape: Torment, and other stuff that I had a real history with. Why couldn’t I part with them the same way I’d parted with the others? I’d still probably never play them again.
It turns out that the endowment effect really gets ramped up the more personally significant the item are to you. This shouldn’t be shocking because we’re all familiar with the concept of “sentimental value.” But what’s really amazing is that not only can that meaning be invoked by your ownership, bit can also be elicited simply be knowing that an item has a history –even if you’re not a part of that history. This is the principle upon which the philanthropic project Significant Objects is founded. 2
The team at Significant Objects buys junk then has professional writers make up elaborate and interesting faux histories for those objects to be incorporated into eBay auctions. Even though the team makes it perfectly clear that the stories paired with these objects are fictional, the results are amazing: an empty chocolate tin sells for $36. A jar of marbles goes for $53. A simple ash tray rakes in $107. Just because framing the objects in terms of its elaborate, personal history makes the buyers perceive it as having more significance and meaning. (And lest you become indignant about such manipulation, allow me to point out that the Significant Objects project donates some of its earnings to charity.)
So next time you try to hawk some of your old games, you should first consider how the endowment effect is inflating your irrational expectations about how much they’re worth. Then try telling a story about your experiences with the game and why it’s important. Maybe you’ll win that glassy-eyed Assistant Manager over with you tale.