The endowment effect is one of many cognitive biases that distort our thinking and decision making.  It renders us more likely to overvalue things we’ve acquired, irrespective of their actual value.  New research from Vanderbilt University explores why this might be so, and suggests it may have evolutionary roots.  Specifically, the things that we tend to overvalue most of all have played a crucial role in our survival in the past.

The research was able to predict around half of the variation in the size of the endowment effect by taking this evolutionary approach, which the researchers believe is the first breakthrough of its kind.

“When you look at human history, modern concepts like money, contracts and even legal systems for enforcing bargains have only existed for a fraction of our existence as social primates,” the researchers say. “Across evolutionary timescales, exchanging items was very risky because you had no assurances that potential trades would work, and no recourse if they didn’t. That’s no longer the case, of course, but our brains haven’t had time to catch up. There’s a mismatch between what they evolved to do and our environment today.”

It’s a mismatch that the researchers suggest explains why we’re prone to overvalue something we already have, even if we have the option to trade it in for something patently better.  Studies into chimpanzees and orangutans have illustrated that this endowment effect is especially strong when it comes to food, or tools used to access food.

“The fact that several different ape species showed the same pattern of responses strongly suggested that human endowment effects should also vary in predictable ways across contexts, but no one had tested that question,” the researchers continue. “Our research takes that next step, exploring whether humans also show a greater tendency to overvalue things that are related to survival and reproduction.”

Survival bias

The researchers constructed a list of 24 items, consisting of both real and imaginary things and covering a range of both usefulness and desirability.  Each item was awarded an ‘evolutionary salience score’ that was designed to reflect how useful they would be in the survival of their owner.  For instance, the highest rated item was a pill that would allow the owner to maintain a perfect weight, whereas the lowest rated item was a subscription to a video streaming service.

Half of the volunteers were asked to give the maximum price they would pay for each item, with half instead asked to name the maximum price they would sell each item for.  Despite logic suggesting that both should be the same, clear differences emerged.

The results show that the typical buy price was around $54, but the typical sell price was over twice as high, at $124.  The results clearly illustrate the endowment effect in action, but at the individual level, the size of the gap was more significant.  The biggest gap emerged in areas related to health and status.

Indeed, the evolutionary salience score produced by the researchers was able to predict 52% of the variance between the maximum buy price and the minimum sell price across all of the items, with seven of the items with the largest endowment effect among the top nine in terms of evolutionary salience score.

“Reviewing the endowment effect literature, you notice pretty quickly that the size of the effect varies from one item to another,” the researchers explain. “But there hasn’t really been a systematic effort to explain why. Our findings suggest that this variance is not random. Rather, it may reflect the evolutionary origins of the effect.”