By Dan Monheit 6th October 2023
Question submitted by Maggie, Brisbane
You know Maggie, I was thinking the exact same thing just last night. There I was, mindlessly scrolling through Marketplace, marvelling at the prices being asked for a secondhand (read: used) pair of cycling shorts! How is that even a thing?
And of course, you wouldn’t dare waste your time asking for a small discount in light of that unfortunate stain or free postage given you’re just two suburbs away. No way. You might as well just ignore and block yourself.
Whether you’re an Ebay enthusiast, a Depop die-hard or a Marketplace maestro, it feels like everyone in the ‘resell community’ has lost their lycra clad marbles. Or at least their ability to offer up a fair and reasonable price. That is, of course, if they had the ability in the first place…
The Endowment Effect
What’s at play here is the Endowment Effect, a bias that refers to our tendency to believe that something is worth more, simply because we own it.
A classic piece of research on the Endowment Effect comes from the observation of a real world phenomenon by psychologist Dan Ariely and research partner Ziv Carmon.
At Duke University, there’s no hotter property in town than a ticket to see the Blue Devils, one of the most prestigious and successful college basketball teams of all time. So much so that every year, hundreds of students camp out in front of the stadium, just to put their names into the ballot from which a handful of winners are randomly drawn.
Ariely and Carmon took it upon themselves to talk to students who’d been lucky enough to win tickets, as well as those who hadn’t. Winners were asked to state the lowest price they’d accept for their highly coveted tickets, while non-winners (ok fine, losers) were asked to state the highest price they’d pay.
The variance between the two sets of answers was staggering. On average, students without a ticket were willing to pay up to $175 to get one. Those with tickets wanted at least $2,400 for theirs.
The biggest difference between the two groups? Ownership.
When interviewed, winners couldn’t help but recount the energy, time and stress that went into obtaining the tickets, and no buyer would be free from compensating them for that.
But back to you, Marketplace Maggie. Though a rational human would look at the item they’re about to sell and objectively consider its age, condition and rarity to arrive at a fair price, we tend to get a little lost in the process. Beyond the basics, we might be influenced by the fun we had wearing it, the thrill we had buying it or the regret we felt not using it. All of this and more adds up. Literally.
For brands, the key takeaway is finding ways to make it easier for prospective customers to feel like our product is already theirs, knowing they’ll value it more once they do. This could be done through free trials, test drives, ‘light’ versions, co-designing and more. Creating a premature sense of ownership will make walking away feel all the more painful, and closing the deal far more likely.
PS If you missed the last edition, you can still check out why people assume we agree with their ridiculous ideas here.
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Bad Decisions Podcast
Learn more about the Endowment Effect in episode 4 of the Bad Decisions podcast.
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Check out Dan’s episode with The Broke Generation Podcast on ‘Why do we buy things we don’t even want?’ here or where ever you listen.
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