October 8, 2005

WHO SAID DARWINISM WAS BANAL?

Hoarding junk? No I'm just doing my bit for evolution (Alexandra Frean, Timesonline, October 8th, 2005)

The observation that the things we own are more valuable to us than to other people simply because they are ours is widely acknowledged by economists, who call it the “endowment effect”. This holds that people demand more money to give up an object than they are willing to spend to acquire it, and explains why most of us would not swap our favourite sweater, for example, with something of equal value.

Economists are interested in and puzzled by the endowment theory because it goes against classical economic theory of people behaving entirely rationally where money is concerned.

Now, three economics professors think that they have found a Darwinian explanation for why it exists.

According to Steffen Huck, of University College London, Georg Kirchsteiger, of the University Libre de Bruxelles, and Jorg Oechssler, of the University of Heidelberg, our emotional attachment to our possessions is “hard-wired” into our brains to help us to survive.

They cite an experiment in which every other student in a class was given a mug bearing their university’s logo. Students who had been given mugs could then sell them to those who had not received one.

They found that sellers demanded much more for the mugs than buyers were willing to pay. In other words, owners seemed to like the mugs more than buyers who did not have one, demonstrating a near- instantaneous endowment effect. [...]

Professor Huck and his colleagues also devised mathematical equations to demonstrate that the downside of having too much of whatever it is you own, be it corn, meat or mugs, is always less significant than the considerable upside of being able to secure a good deal in any bargaining operation.

“From an evolutionary viewpoint, if you can get more of something that’s good for you, such as food, you will be healthier and better off and have more children,” Professor Huck said.

We have this theory that survival pressures led nature to select for humans who ignore economists.


Posted by Peter Burnet at October 8, 2005 6:50 PM
Comments

There must be someone who can explain how their theory doesn't demonstrate intelligent design in action.

Posted by: oj at October 8, 2005 7:02 PM

let's see, Darwinism is pretty much the application of 19th Century economic theory to biology, so we now the application of Darwinism to economic theory.
The cicularity of this thinking is driving me to drink, Thank G-d, as I've been looking for a rational reason to do so all day.
Mike

Posted by: Mike Daley at October 8, 2005 7:26 PM

Polish Grandmother story:

God is walking through the forest, when He copmes across the Devil, sitting on a log, chewing on a lump of darkened meat. God asks, "What are you doing?" "Eating my heart," the Devil replies. "Does it taste good?" God asks.
"No, it is very bitter," is Satan's answer, "but I like it because it is mine."

God and the Devil made it into a lot of Polish granmother stories.

The reasarch, as well as the story go far to explain how some gun collections grow quite so large.

Posted by: Lou Gots at October 8, 2005 9:15 PM

Well, this strikes me as dumber than the usual run of psycho-economic theories, and that's saying a lot. If we buy something, then it is necessarily true that it is worth more to us than the amount spent -- otherwise, we wouldn't bother. So of course we're not going to trade it for an "equivalent" amount of money, defined as something of "equal value" or "as much as we would spend to acquire it."

Usually, the first week of micoeconomics takes care of the idea that we can make interpersonal comparisons and the idea of consumer surplus (the amount between the price of something and what we would spend if we had to.

Posted by: at October 8, 2005 11:22 PM

Next up: the well-endowment effect.

Posted by: Barry Meislin at October 9, 2005 3:16 AM

Lou, that's a poem by Stephen Crane (don't know whether he had a Polish grandmother, too):

'In the desert'

In the desert
I saw a creature, naked, bestial,
Who, squatting upon the ground,
Held his heart in his hands,
And ate of it.
I said: "Is it good, friend?"
"It is bitter-bitter," he answered;
"But I like it
Because it is bitter,
And because it is my heart."

-- Stephen Crane

Posted by: ted welter at October 9, 2005 5:37 AM

[T]he endowment effect [...] explains why most of us would not swap our favourite sweater, for example, with something of equal value.

But how many of us would turn down the opportunity to swap a not-favorite sweater for a new and different one ?

That would be a better test of the "endowment effect", since that would be the only hold that a non-favorite sweater would have on us.

Posted by: Michael Herdegen [TypeKey Profile Page] at October 9, 2005 6:13 AM
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