Possession Is Nine-Tenths the Perceived Value
WEDNESDAY June 11, 2008 -- As anyone who has thrown a yard sale knows, it can be hard to part company with what was once a prized possession.
In an attempt to grasp this all too human -- and sometimes irrational -- tendency to overvalue what is yours, researchers have found that having a tenacious grip on the stuff you own has little do with an enhanced love for familiar objects. Rather, it seems that your brain is simply hard-wired to help stave off the loss of what you have.
"Loss is not the opposite of gain," explained study author Brian Knutson, an assistant professor in the department of psychology and neuroscience at Stanford University. "They are two separate things, because people tend to overvalue the things they own and prefer what they own rather than comparable things they don't own -- a phenomenon known as the 'endowment effect.' And our brain research shows that this effect often seems to exist not because people are more driven to appreciate the things they own and find them more attractive, but because they simply can't stand the thought of losing a possession."
The finding is published in the June 12 issue of Neuron.
The authors said that the observation that "loss aversion" is the key dynamic behind the endowment effect could help explain why some people don't always act rationally when making economic decisions.
"The endowment effect makes economists nuts," Knutson noted, "since it means that some people -- although not all -- might require others to pay twice as much in order to be willing to sell a possession they own as they themselves would be willing to pay for the same thing, which really makes no sense in a market economy and is not always in the best economic interest of the decision-maker."
"And the key here," he added, "is that we found that emotions related to the fear of loss -- and the patterns of activity these emotions trigger in certain regions of the brain -- play a big role in driving these sorts of economic decisions."
Knutson and his colleagues set out to dissect the endowment effect by subjecting 24 healthy men and women to functional magnetic resonance imaging (fMRI) scans to observe brain activity in three regions of the brain: the greater nucleus accumbens (NAcc); the mesial prefrontal cortex (MPFC); and the insula.
The researchers note that the NAcc is associated with the prediction of monetary gain and preferences for particular objects. The MPFC is linked to revising and updating first impressions regarding monetary gain, while the insula is associated with the prediction of monetary loss.
All the participants were scanned while being offered various opportunities to buy, sell or express a preference for six different "highly desirable consumer products" tagged with one of 18 different possible prices. The items included an iPod, noise-canceling headphones, a digital camera, an alarm clock base, a flash drive, and a wireless mouse.
The authors found that NAcc activation increased both when a participant was buying or selling an item they said they "preferred". On the other hand, MPFC activity went up in tandem with price when selling, but moved in the opposite direction of price when buying.
They concluded that such brain patterns reveal that owning something does not, in fact, boost that item's attractiveness in the eyes of the owner. Rather, the mere fact of ownership colors the prism through which owners view their possessions, turning them into something they do not wish to lose, regardless of whether retaining the thing in question is a good economic decision.
Dr. Paul Sanberg, a professor of neuroscience and director of the Center of Excellence for Aging and Brain Repair at the University of South Florida College of Medicine in Tampa, said he felt the findings "make sense." And he lauded the effort to deconstruct the neurological framework that shapes the way individuals make critical choices.
"Understanding the brain mechanisms that lead to decision-making is important for appreciating how difficult it can be to break bad habits," he said. "And appreciating these difficulties is key to developing intervention strategies to help people learn how to make better decisions."
Dr. Eric Hollander, chairman of psychiatry at Mount Sinai School of Medicine in New York City, seconded the notion.
"A lot of health-care costs are associated with bad behavior," he observed. "But it's very hard to get people to change bad behavior. Some people are compulsively risk-averse and extremely focused on warding off future loss, while others are much more impulsive and act mostly on the basis of immediate gratification, despite future negative consequences. Extremes in both categories can be problematic, so you want to help people achieve an optimal balance between the two. And these kinds of brain-imaging studies are very important in improving our understanding of the brain's role in all of this, and pointing us toward good ways to intervene."
For more details on the brain and economic decisions, visit the PBS NewsHour.
Posted: June 2008