minimalism v. The Endowment Effect

It is always interesting to me when diverse schools of thought converge in slow living. Listening to one of my favorite podcasts, NPR’s Planet Money, I stumbled upon the work of Richard Thaler, recent winner of the Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Thaler, the founder of the field  of behavioral economics, primarily studies why everybody makes economic decisions that are not in their best interests, and do so consistently.

The theory that sparked my mind is what Thaler calls ‘the Endowment Effect.’ Thaler and his colleagues have repeated experiment after experiment showing that the simple fact of ownership of a Thing increases the financial value we ascribe to the Thing.

“This pattern—the fact that people often demand much more to give up an object than they would be willing to pay to acquire it—is called the endowment effect”

-Richard Thaler

Others analyzing the data have offered an alternate, but no less fascinating perspective. Once we possess a Thing it becomes, in effect, part of us. And that drives us to hang onto it. This is called in psychology the Mere Ownership Effect.

As I minimize, I find I am frequently facing this challenge. Not only of how Things can define us, but also of that simple math of “would I buy this again?”

An example close to many folks’ hearts would be a concert ticket.

A friend of mine had a ticket to the Tragically Hip’s final tour. He bought it at face value and was very glad to have the opportunity to go. The show sold out quickly (as did the whole tour) and, of course, the resale prices skyrocketed. Let’s say $500 a ticket for a round number.

My friend looked at the price and said “I’m glad I got mine because I would never pay $500 for it!”

The economic problem with this is he is doing exactly that.

Since he could put his ticket up for sale for $500, what he is “paying” in a pure economic sense is not the face value but instead the $500 he is turning down.

So what does this have to do with minimalism?

I looked at a practical application of this recently on my YouTube channel.

I have found the endowment effect at work in quite a reverse way as I minimize, particularly when I sell items. I often joke that the value a Thing has to me in inversely proportional to what it sells for on eBay.

In other words, the higher the possible return, the less I give a care about holding onto it.

Many a treasured collectible has hit eBay after I discovered it sells for $50.

At first blush, it would seem that I, the great minimalist, have conquered this base drive.

Not a chance.

What is really happening is that I have assigned an over-riding value to my top goal – eliminating my personal and student loan debt. As such, it is not that I’ve broken the cycle so much as redirected it. I can overcome my desire to possess a Thing with even small amounts of money that will get me closer to my main goal. That $5 bill is now the Thing I want to possess.

Even what I donated or discarded can be explained through this drive. By assigning a “how much would you pay to buy it again?” value of $0, I can dispose of any item without too much muss or fuss.

Donation I find especially easy because the thought process can be expressed as simply as:

Would you rather have t-shirt you never wear, or donate $1 to charity?

Framed this way, that is no question at all for me.