The Endowment Effect
I recently discovered what appears to be the answer to yet another long standing question of mine; why do some people collect airplanes like mad, only to let them rot? If I told you it rests within the mind, would that be a surprise? The solution? It’s called the Endowment Effect (aka divestiture aversion), and put very simply it explains that the mere act of possessing something leads a person to place a disproportionate value on it.
Don’t let the basic nature of this effect fool you. There is a lot of power in simple ideas and this one, often able to explain many of the seemingly unexplainable day to day decisions of mankind, is no different. Therefore, in an effort to help you better understand it, let me offer an example.
There are two items, one that is worth ten dollars and one that is worth twenty. You can only afford ten dollars and although you want and would buy the twenty dollar item if you could, you only buy the one you can afford at ten dollars. The next day, the owner of the item worth twenty offers you a straight trade. The Endowment Effect explains why a large percentage of people would not take this logical trade for the one worth twenty as they place more importance on loss rather than gain. Loosing what they have in hand is thus very hard to do despite getting something worth more. This is suspected to be an evolutionary mental trick that would favor hunters and gatherers but in the modern world it often serves to reveal a shortcoming of the human mind. Whatever the case, it does seem to explain the wonderful old guy with fifty planes squirreled away in his back yard. We all know at least one and some of us over twenty. One such person recently gave me a glimpse of something rather unique.
There are two items, one that is worth ten dollars and one that is worth twenty. You can only afford ten dollars and although you want and would buy the twenty dollar item if you could, you only buy the one you can afford at ten dollars. The next day, the owner of the item worth twenty offers you a straight trade. The Endowment Effect explains why a large percentage of people would not take this logical trade for the one worth twenty as they place more importance on loss rather than gain. Loosing what they have in hand is thus very hard to do despite getting something worth more. This is suspected to be an evolutionary mental trick that would favor hunters and gatherers but in the modern world it often serves to reveal a shortcoming of the human mind. Whatever the case, it does seem to explain the wonderful old guy with fifty planes squirreled away in his back yard. We all know at least one and some of us over twenty. One such person recently gave me a glimpse of something rather unique.
Around the engines seeping oil, beyond the barely airworthy aircraft, and just under fuselages stacked overhead, lays this secret project. Brought into the country and subsequently parked in a mass grave of aircraft, this machine corrodes do to a runaway trick of the mind. How many of you at this point think you know who this is? I bet nearly half of you have someone in mind. Most likely, you are wrong. Amongst stacks of aluminum feathers, one of ten ultra rare Stearman C3R’s built for and sent to the Peruvian Air Force sits. Sadly though, the owner got it home without anyone knowing about it, and now it appears he has no interest in sorting out the paperwork; and why would he, even though he can’t afford to restore it, he possesses it. But wait, there’s more.
According to this guy, there are more planes to be had down there. One of these is a rare WWII Kingfisher. He told me he couldn’t afford to go get it but when I offered him money just to give me directions to see it, he changed his mind and became sure he’d figure out some way to get it home and hidden in the hangar. Ahh, there it is again, that pesky power of the mind over what matters. Merely possessing the location of this plane was worth more to him than trading it for something tangible he doesn’t have, cash. Amazing!
According to this guy, there are more planes to be had down there. One of these is a rare WWII Kingfisher. He told me he couldn’t afford to go get it but when I offered him money just to give me directions to see it, he changed his mind and became sure he’d figure out some way to get it home and hidden in the hangar. Ahh, there it is again, that pesky power of the mind over what matters. Merely possessing the location of this plane was worth more to him than trading it for something tangible he doesn’t have, cash. Amazing!
Yeah, I know what you’re thinking; the Kingfisher doesn’t exist. But having seen the stuff his family has dug up and hearing the back story, I would lay money on it being there. After all, he does have one of only ten Peruvian C3R's.
NOTE: When I Googled “Endowment Effect” one site offered this simplified description:
"When I own something, I will tend to value it more highly. If I have to sell it, I will probably want to ask more than it is really worth."
Now tell me, does that not explain aviation perfectly?
Now tell me, does that not explain aviation perfectly?
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