Gift Giving Guy

I’ve returned to reading Barry Schwartz’s Paradox of Choice.

For a while, this paperback served as my air travel book. (I’m still using the Midwest Airlines boarding pass stub as a bookmark.) But since I have no travel plans until spring 2008, I have picked up the book again for mid-summer reading.

In Paradox, Schwartz describes a human tendency called the endowment effect — that is, when someone gives you something, it becomes yours and the psychology of ownership kicks in. Schwartz explains how the effect works.

“[S]uppose you are one of a large group of participants in a study and for your time and trouble, you are given either a coffee mug or a nice pen. The two gifts are of roughly equal value and randomly distributed — half of the people in the room get one, while the other half get the other. You and your fellow participants are then given the opportunity to trade. Considering the random distribution, you would think that about half of the people in the group would have gotten the object they preferred and that the other have would be happy to swap. But in fact, there are very few trades. This phenomenon is known as the endowment effect. Once it becomes part of your endowment, even after a very few minutes, giving it up will entail a loss. And, as prospect theory tells us, because losses are more bad than gains are good, the mug or pen with which you have been ‘endowed’ is worth more to you than it is to a potential trading partner. And ‘losing’ (giving up) the pen will hurt worse than ‘gaining’ (trading for) the mug will give you pleasure. Thus, you won’t make the trade.”

Schwartz goes on to describe another mug experiment. College students were handed a coffee mug to examine and set a price as if they owned the mug and were to sell it. Next, the researchers actually gave students the mugs, then offered the students an opportunity to auction the newly owned mugs. Once the students truly owned the mugs, they sought a price that was 30 percent higher than the price quoted earlier.

I find it fascinating that, within moments, a gift becomes part of your stuff, and you can almost immediately add value beyond the original price tag — which hopefully was removed before the gift wrapping.