I am a bit of a nerd. I love research and theories on human behavior. It’s no wonder why I ended up as a Psychologist. What I also find fun is sharing my love of the “boring” world of research in a ways that make it come alive to the average person in the typical life. Today I’m sharing one aspect of human behavior that I have found fascinating. It’s called the “endowment effect”. In a nutshell, it describes the universal behavior that humans ascribe more value to things that they own than things they don’t own. Some of you are thinking, “that is obvious”, while others might be thinking, “I’m not sure I see that….”. Let me use some practical examples to shed light on this phenomenon.
My husband is an amazing Realtor. The amount of dedication he shows to his work and his clients is inspiring and far exceeds his peers. Because he talks with me at the end of his day about the highs and lows of real estate sales, I have seen this phenomenon wreak havoc in homes sales.
It shows up when he works with sellers. Part of his job is to be the expert on the market and the pricing of real estate so that he can confidently let people know what their property is worth in today’s market. However, he is often met with resistance by the seller because they insist that their property is worth more than what the market would bear. The reality is, because they own the property, they use faulty logic to assume that the value they “feel” is really the value. This is the challenge of a Realtor with the “endowment effect”.
I have the privilege of working with entrepreneurs through another organization, Leadership 3D. I coach entrepreneurs through personal challenges in business and overcoming the burnout of business ownership.
One thing I have noticed with entrepreneurs is that they typically hold on very tight to their own business ideas. They value them highly as intellectual property and can have a hard time letting others influence the path of the business. They can very emotionally resistant to any negative feedback on the feasibility of their ideas.
In fact, I had a conversation with a business owner just a week ago, and he admitted to me that he was holding on to a business idea too tightly and was potentially impacting the future growth of the business. Alternatively, however, some of the best entrepreneurs treat their own ideas with some irreverence and don’t put more stock in their own ideas than ideas from those around them. They treat everything with the same level of objective scrutiny. This is the challenge of entrepreneurship and the “endowment effect”.
How might this apply to your own mental health? Always be open to what might work and what might be better. Have the humility to recognize that how you “feel” isn’t necessarily reality and use others to test the reality of value.
-Dr. Sheri Fluellen