The Endowment Effect: A Review On Personality And Socioeconomic Status
A study of the possessive nature of people across varying socioeconomic backgrounds.
Decades of behavioral study has revealed that people are less likely to let go of their possessions — whether or not owned by them. Researchers had postulated that this is because people are more scared of losing a possession than gaining more by giving it out, a phenomenon that economists refer to as loss aversion.
However, the endowment effect goes beyond being a behavioral trait for loss aversion. It is a psychological condition that not only influences the prices of artistic products but also defines our personality and — along with some other factors — reflects our socioeconomic background.
From a personal behavioral study of people ranging from young children to geriatrics, I have observed usual patterns. These patterns, when linked with environmental factors, may be viable for predicting the level of influence that individuals have within their immediate environment.
My Study: A Brief
Children seem to be pretty attached to their toys and some other endowments. A kid my neighborhood — let’s call him “Little Joe” — has been obsessed with his footwear even when they don’t fit his feet anymore. His parents dare not throw or give them away. The Greek Hades threatened to descent whenever they tried.
Six kids within Little Joe’s age group didn’t exhibit the same behavior. There must be something about him and his belongings. The hunger to divulge this mystery fueled my study. Hence, I went on to observe even older people, as well as myself.
Well, yeah. I’m human, and I could exhibit the endowment trait too.
From findings, older people who are academics or book lovers seem very attached to their books that they place ridiculous values on them. Art lovers have shown the same behavior.
While some other persons attach relatively low value to these material possessions, a select few would instead display a berserk possessiveness over them.
Depending on the social influence of the individual, this obsession tends to influence the perceived value of a commodity. For instance, an influential person being possessive of a piece of art, and placing exorbitant value on it can cause a sharp shift in the market price of that commodity — and not necessarily its real value.
Endowment Effect And Market Prices For Art Products
Discussing price and value, Sergey Faldin, in his article, considers a book as a piece of art, therefore, having a subjective value. He asserts that a book is worth whatever value its author (or owner) places on it. This also holds for people who possess the first edition of certain books. Most value them exorbitantly.
While many other persons may not drop a pin gifting these shelf-wrecked books, I strongly argue that those holding on to theirs are not scared of losing them. Instead, they developed a psychological attachment to their possessions — the endowment effect. This is contrary to the assumptions of behavioral economists that the endowment effect is inextricably linked to loss aversion.
Endowment Effect And Narcissism.
With little to no attention from the general population of behaviorists, persons with different personalities have a varying level of the endowment effect.
Believably, sanguines — often extroverts — may be less likely to get attached to their possessions. Although some introverts could be relatively selfless with cherished possessions, persons with narcissistic traits exhibit an extreme level of attachment to their material possessions.
James Garbarino, in his book, “The Positive Psychology of Personal Transformation,” proposed that narcissists who regulate their esteem by increasing their apparent status show a high interest in the symbolic value of commodities than they do to the utilitarian value.
More often than none, we find people with this personality trait adoring and purchasing expensive commodities that are priced significantly higher than their real value.
Other than the fact that they tend to exhibit what I refer to as “Buyers’ Imaginative Endowment,” they exaggerate the values of their possession. Although these items may have everyday uses that are not considered uniquely special, narcissists might present them as symbolic.
A study by Joe Simmons made it evident that these behaviors by influential people affect the correlation of market prices and valuation of commodities.
Narcissistic leaders and influential people tend to influence — significantly — the prices of items. They either do this through their “Buyers’ Imaginative Endowment” on commodities that they are aspiring to own or the outright endowment effect on their possessions. Usually, you will find them in auction houses bidding outrageous amounts for paintings and seemingly mediocre pieces of art.
The Endowment Effect And Poverty
The endowment effect is mostly observed in influential people. This is because they are often the focus of many studies. People at the lower strata of the economy are also humans. The endowment effect is a psychological condition that could be attributed to humans irrespective of class and age.
As influential leaders are obsessive about items with symbolic significance, their lower socioeconomic counterparts are most probably obsessed about cash and relatively small possessions.
Albeit attributed to loss aversion, less wealthy people are less likely to part ways with their money. Instead of investing them, using them on certain items of value, or gifting them, they are more likely to save them.
From my study, I observed a man — fairly advanced — place extreme value on a bill (equivalent to $5 at the time). This money could barely afford a dozen bottles of beer, but somehow he assumes it could pay for a microwave oven.
Along with poor socioeconomic backgrounds, people who express attachment to money and certain material possessions are less likely to identify investment opportunities. They may be blinded by their attachment and delusional value of the items.
In the Journal of Experimental Psychology, Andrew Erhart and his team of researchers asserted that poverty exposure increases the risk of negative emotional outcomes. Also, studies in neuroeconomics suggest that “the endowment effect is associated with regions of the brain implicated in negative emotions.”
With these, it could be deduced that an increase in negative emotional outcomes can greatly influence the level of endowment effect on an individual. This creates evidence that people with poor socioeconomic backgrounds are more likely to exhibit the endowment effect at an extreme level and most probably over relatively worthless possessions.