The High Price of Ownership

Another group, who does not receive mugs, is asked what price they would pay to buy one. The sellers' average asking price is consistently about twice the buyers' average offer. The same mug, valued by the same population, is worth twice as much to its current owner as to a prospective buyer.

The chapter explores why ownership produces this attachment. Owning something for even a short time creates a relationship with it that the prospect of owning does not. The relationship adds value that the buyer does not have access to. The pattern is so consistent that it has practical implications: free trials work in part because once you have used a product, giving it up feels like a loss, and the loss aversion exceeds the original gain from acquiring it.

The defense is to evaluate ownership decisions from the perspective of whether you would buy the item today at its current market value, not from the perspective of how much you would have to be paid to give it up. The two perspectives produce very different answers for the same situation. The first is the closer approximation to what the item is actually worth; the second is what your loss-aversion psychology will defend regardless. The chapter is a useful tool for any decision involving disposing of, replacing, or upgrading items you currently own.

In the classic mug study, sellers demanded roughly twice what buyers were willing to pay for the identical object, and a Duke experiment on coveted basketball tickets was starker still: students who won tickets in a lottery valued them about fourteen times higher than students who lost and wanted to buy. Ariely isolates three quirks of ownership behind the endowment effect — we fall in love with what we already have, we fixate on what we stand to lose rather than what we might gain, and we assume the other side of the deal sees the object as we do. He adds that ownership can be triggered before any purchase: free trial periods and 'try it for 30 days' offers manufacture a feeling of possession, and auctions create 'partial ownership' as bidding raises it, both of which inflate willingness to pay. The defensive move is to treat trials and test-drives as the persuasion devices they are, and to evaluate a possession as if deciding whether to acquire it fresh.