Study questions endowment effect

New research suggests that the widely observed endowment effect — a phenomenon in which humans value an item more if they possess it than if they do not — may be a product of modern society and not our evolutionary roots, as was previously suspected.

In the study, researchers ran an experiment on Hadza hunter-gatherers in Tanzania, and found that they did not exhibit the endowment effect. The hunter-gatherer population exists in an egalitarian society that features complete redistribution of goods. By contrast, Hadza that lived closer to a town or village with a market structure did show the effect, demonstrating that it may arise from exposure to a society where goods are traded for money. The research has implications for public policy in providing a greater understanding of how the mind makes suboptimal decisions, said Nicholas Christakis, study co-author and Yale professor of sociology.

The authors sought out the Hadza because their isolated way of life approximates most of our evolutionary history, said Coren Apicella, study co-author and professor of psychology at the University of Pennsylvania. In recent years, tourists have increasingly visited areas inhabited by a small subset of Hadza, and often pay the Hadza money in exchange for hunting tours or bows and arrows, effectively creating a market.

In the study, Apicella gave both isolated and market-exposed Hadza either a biscuit or a lighter and asked each whether they would like to trade their item for the other gift. Apicella found that 53 percent of isolated Hadza decided to trade, but just 25 percent of Hadza living in market regions chose to trade when asked the same question. In contrast to the Hadza in the market environment, the isolated group did not display the endowment effect because they did not show a preference for the good they were given initially.

Christakis said the research did not conclusively determine the exact mechanisms through which the endowment effect is either created or suppressed. He said market interactions could potentially make people suspicious of trades.

“When they’re offering you money for something you have, you think that maybe they’re trying to get it for less than it’s worth.” Christakis said.

Apicella said it is also possible that the endowment effect is part of our evolutionary psychology, but that the egalitarian norms of the isolated Hadza suppress this effect.

A large body of previous research had found evidence for the endowment effect. In 2008 at Yale, professor of psychology Laurie Santos found evidence for the endowment effect in capuchin monkeys. But just as the market may have caused the endowment effect in Hadza, the simulated economy of the capuchin study may have induced the endowment effect in monkeys, said Apicella.

The study is one of many in the relatively new field of behavioral economics, which examines irrational biases in consumer decisions. Christakis said that understanding biases like the endowment effect is important for shaping public policy. By studying the ways the mind makes decisions, the institutions can change the ways options are framed and “nudge” people to make better choices for themselves.

“In order to do that, we need to understand how people are led astray,” Christakis said. “If we really understood why people procrastinate, for example, maybe you could design assignments or work out the timing of assignment to minimize the adverse effects of procrastination on students.”

Yale professor of psychology David Rand said he hoped the researchers explored the mechanism underlying the endowment effect, adding that they could expose isolated Hadza to market conditions to see if they could induce the endowment effect.

There are fewer than 1,000 Hadza living in northern Tanzania.