Don’t Save It for a Rainy Day
Make the most of the little things while the sun shines.
When I was a child, I was given some Harry Potter stickers. Not just any Harry Potter stickers, but textured ones that were all puffy and covered in beautiful illustrations, like the early book covers. Far too beautiful to frivolously stick in my sticker book. After years of restraint, I rediscovered the stickers during a spring clean and to my dismay, not only was I far less excited by their “Potter-iness” than when I first was given them, but they had also lost their stick.
As I finally plucked up the courage to throw out the unused, non-stick stickers I swore that in future I would enjoy nice things sooner rather than waiting until it’s too late.
Yet I’ve since let fancy bottles lose their fizz, favourite clothes go out of fashion, and fun food fester in the fridge.
Why are we willing to wait?
From video game boost coin “treasure” that you save for a ‘life-or-death’ moment that never comes to special wine that you wait decades to drink and discover it’s corked, we humans have track records of saving for rainy days that… never come.
If I were to explore your cupboards at home, what would I find that you’re saving for a special occasion?
The behavioural science behind this phenomenon is called “the endowment effect”. Simply put, it’s the idea that once we own something, we value it more highly than if we were to just go out and buy another item of similar value.
Rather than using the item, we hold on to it and save it for an occasion worthy of its greatness. Except, we attach such a high value to the item that the ‘occasion’ never comes around. This most often happens with gifts we receive, like my Harry Potter stickers.
In the most famous experiment on this topic, Cornell graduates are given a mug and then offered to trade it for an equally valuable alternative: a pen. The vast majority refuse. It’s not because it’s a great mug. Switch things around, and the majority won’t trade their pen for the mug, either. Once we own something, we deem its value to be far greater than before.
To this effect, subsequent experiments have shown that we name selling prices far higher than buying prices and in one very interesting study, employees worked much harder to retain a provisionally awarded bonus than they did for a bonus that was yet to be awarded.
In short, we work hard to maintain the things we have, and we won’t part with them easily. In video game terms, we won’t ‘waste’ that special protection we just collected: it’s ours to keep, no matter how many fire-breathing dragons are attacking us.
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How are businesses using this to their advantage?
If we find it hard to give something up once we own it, it follows that a smart marketing tactic is to give someone a sense of ownership before they buy.
The Free Trial
Duolingo is especially good at this. After a few days of avid usage it ‘rewards’ you with full access to their premium tier. Wow… this feels great. No ads, shiny new content unlocked… and it’s all… mine! For 3 days. Then they take it back. By that time, we’ve not only adjusted to the cushy features but also feel a pang of loss as something we briefly ‘owned’ and enjoyed using has been taken away.
The Free Return
Most popular with e-commerce sites, this encourages us to buy on the premise that we can just ‘try’ the item and return it if we don’t like it. However, it’s easy to forget that preference is not the only thing at play here. Even if we don’t love the item, we bought the item, it’s ours fair-and-square and the endowment effect is at work, subtly persuading us not to ship it back to the store.
Haptic Imagery
How incredibly generous of the furniture store to allow us to simulate what the sofa would look like in my living room… except… the image of a customised sofa in our own living room sticks in our minds — a vision of ownership that triggers the endowment effect. We might feel it’s “meant to be” or that it just feels the right one to choose, but it’s because our minds are beginning to believe we already own it, making it harder to let go.
How can we use the endowment effect to our advantage?
In Negotiation
When preparing to negotiate, the endowment effect can help us understand what the other person is thinking. We know, for example, that the counterparty will naturally put a disproportionately high value on what they own, so it pays to research the going rate and assume a higher starting offer.
The Decision Lab explains that part of the reason it’s in our nature to demand a higher price in negotiation is that “we are more focused on the out-of-pocket cost (losing that item) than we are on the money we lose if the buyer doesn’t agree to our price.” Put simply, the endowment effect means there’s a small part of us begging us not to do the deal, so we don’t have to lose something we already own.
In Career Decisions
Knowing that the endowment effect heavily shapes our decisions can help us challenge them.
Daniel Kahneman and Amos Tversky ran an experiment where they told participants to imagine they were in one of two jobs. They then asked if the participants wanted to switch to the other job, which was better in one aspect, but worse in another. Regardless of the job they were assigned to start with, the majority did not want to move.
Whether it’s a job or a relationship, we’re primed to be attached to what we have, and it takes a monumental effort to convince our brains to make a change.
Once we know the effort required, we can start to appeal to our rational thinking by focusing on what we stand to gain versus what we stand to lose.
In Change Management
The endowment effect is a useful factor to consider when we are responsible for implementing significant changes in an organisation.
The key question is: how much will people lose as a result of this change? No matter if the gain is significantly more than the loss, the more people lose, the more people will feel the effects, calling for careful change management.
Leadership coach David Galloway gives the example of teams reorganising a work station layout. Imagine management finds a more efficient workflow that will save everyone time, but when they tell the team, they are met with high levels of resistance. Why? The team feel a sense of ownership over the space. No matter how much time they will gain from the new efficient layout, it’s hard to shake their attachment to the old layout.
This natural reaction is easy to predict and prepare for, but we’re often so attached to our new ideas that we forget others are attached to theirs too.
From the forward-thinking to the frivolous, there are a lot of lessons we can learn from the endowment effect. Keeping it front-of-mind can improve the way we communicate with our teams as well as the way we negotiate and make decisions. It can also make us more aware of how companies are using it to encourage us to hold onto that new subscription we trialled, or to fill our wardrobe full of clothes we didn’t intend to keep.
At the more frivolous end of the spectrum, once we’re aware of the way it’s holding us back from using things that bring us joy, we can override it and take a moment to indulge in the little things we’ve been saving for a rainy day. Perhaps that’s not so frivolous after all…
I hope you enjoyed reading.
You can subscribe to my weekly newsletter on personal growth 👉 here.
And as promised, here’s a Dad Joke. 👇
Justice is a dish best served cold. Otherwise, it’s just water.
