Centuries of economic theory have been based on one simple premise: When given a choice between two items, people make the rational decision and select the one they value more. But as with many simple premises, this one has a flaw—it is demonstrably untrue.
The fields of psychology and behavioral economics have experimentally identified a laundry list of common biases that cause people to act against their own apparent interests. One of these biases is known as the “endowment effect”—the mere fact of possessing something raises its value to its owner.
Coren Apicella, an assistant professor in the Department of Psychology in the School of Arts & Sciences, and Eduardo Azevedo, an assistant professor in the Wharton School’s Business Economics and Public Policy Department, collaborated with Yale’s Nicholas Christakis and the University of California, San Diego’s James Fowler to study whether this bias is truly universal, and whether it might have been present in humanity’s evolutionary past.
Common endowment effect experiments involve giving participants one of two items, such as a chocolate bar and a mug, and then asking whether they would like to trade one for the other. As the starting item is selected at random, there should be a 50 percent chance that participants initially receive the item they like best, and thus a 50 percent chance that they will trade.
“What we see, however, is that people trade only about 10 percent of the time,” Azevedo says. “People seem to like the thing they have a lot more than things they don’t have—simply because they have it already.”
These experiments generally involved participants from so-called “WEIRD”—Western, educated, industrialized, rich, and democratic—societies. For a new perspective, Apicella drew on her decade-long study of the Hadza people of Tanzania. The Hadza are one of the last hunter-gatherer societies on Earth, living in small, nomadic camps that communally share nearly all their possessions.
“We wanted to examine whether the endowment effect was something that occurs in non-WEIRD societies, since they represent the vast majority of human populations that have ever existed,” Apicella says.
The Hadza also presented a natural way of investigating the role culture plays in these biases, as some camps are more isolated from Western influences than others. When asked to choose between items with only cosmetic differences, such as between two flavors of cookies or two different colored lighters, people in the more isolated camps traded about half of the time, while people in the camp with more contact with commerce and tourism traded only about a quarter of the time.
One explanation for the apparent lack of an endowment effect in the more isolated camps is that the bias is a learned behavior that comes with exposure to capitalistic societies. However, an alternative explanation could be that both groups experience the effect, but it is suppressed in the more communal groups by social pressures.
“While we will need to study this further to see which explanation holds, either way shows that these hunter-gatherers are more rational than the average Western consumer when it comes to economic decisions,” Apicella says.
Originally published on October 10, 2013