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October 20, 2011 / Simon Thorne

Mine is better than yours.

What to write, what to write…? Well it’s my blog, I can write about whatever I want. It is my blog after all. You can buy it from me if you want, but I suspect that I may value it more than you do. Why is that? Why does ownership over something distort our valuations? Lets talk about ownership. We tend to value our own belonging more than other peoples. Why is that? Why does owning something immediately raise our perceived valuation of it? But first, when does something become ours?

Paco Underhill, author of Why we buy champions the use of accessible merchandise displays. This is so the consumer can interact with the product, touch it, smell it, maneuver it. During this exchange with a product, the consumer will imagine, say wearing it, using it or whatever would be required. They will have a mental image of where it’ll be stored at home, when it will be used. This sort of store design allows the consumer to fall in love with something and begin to take possession over it. Peck & Shu investigated the effect touch has on perceived ownership. Before any money has exchanged hands, people begin to perceive an object as being their own.

Perceived value of the object is then also inflated, the price tag may not be so overwhelming any more. Another important factor comes into play now however, loss aversion. As humans we are particularly prone to loss, now that we have made a connection with the product, it feels as if we are losing out if we just put it down.

So we must touch something in order to make a connection? Not necessarily. Peck & Shu found another important factor that increased perceived ownership, ownership imagery. A lot of shopping these days is done online; therefore for sites such as Amazon and eBay, ownership imagery is a huge benefit. When touch isn’t available we still imagine how we would use the product, what it would feel like, and how it would improve our lives. Just by imagining these benefits perceived ownership is increased which in-turn leads to sales and legal ownership! For a site like eBay this is a necessity for the site to function. If you want to sell something on eBay I would recommend putting it on for the maximum amount of time allowed. The more people who can bid, and are temporarily top bidder, the more people with a strong perceived ownership. Perceived ownership of the items bid for, will make it harder for the bidder to give up. They will have already decided exactly when they’re going to wear their new watch, or ride their new bike, without ever actually owning it. That is why we often find ourselves going above the limits we intended to bid. Loss aversion comes into play again. This is seen to great affect on in which bidders often come within seconds of winning, and then lose out, prompting further bidding.

So close... yet so far...

Carmon & Ariely did a fascinating study (discussed in Predictably Irrational) investigating how ownership increases perceived value. At Duke University basketball is serious business. Tickets for such matches are not just sold. Students must prove themselves worthy of having a ticket, and only then, are they entered into a lottery for tickets. Students camp out, and an air horn sounds at random times at which point they must check-in, this goes on for the entire semester. When they finally come to giving out tickets, there is still too much demand, so only the most loyal/dedicated are entered into the lottery at the end. Carmon & Ariely conducted a study involving the winners and losers in the lottery. He offered losers the chance to buy a ticket from the winners. The losers were asked for the maximum amount they would be willing to pay for a ticket, the winners were asked for the minimum they would sell their tickets for. Roughly 100 students were involved. The results? Losers were willing to pay around $170 dollars for a ticket; winners on the other hand valued their tickets at a whopping $2,400.

So, why this huge difference in valuation? After all, each of these fans were as dedicated to the team as the other, regardless of winning or losing the lottery and the price tag they assigned to the ticket should reflect the desire to watch the basketball match equally, shouldn’t it? In the drawing of a lottery the hardcore fans had been split into those with a ticket and those without. Immediately those now with the tickets formed an emotional connection, they dreamed of the atmosphere, the game, the experience. According to Peck & Shu’s research though, shouldn’t ownership imagery also increase the buyer’s valuation of the ticket?

How much would you pay to be here?

This is why I think they didn’t. The losers perceived-ownership of the tickets had gone, it had been lost. The emotional ties they had, in anticipation of the ticket, had been severed. They were almost in mourning and therefore had detached themselves from the experience. However, I think if this study was replicated, and participants were asked to give their prices before the lottery, things would be very much different. Why? Because anticipatory ownership, much like perceived ownership, leads to increased valuations (as seen in Peck & Shu). I believe the prices people would have given their ticket would have been the same as the price they would be willing to pay for a ticket. I believe the value in such a scenario would be somewhere between the two extremes Carmon & Ariely observed due to the fact that actually ownership would again increase perceived value.

Is you home worth more than mine?

We often see inconstancies in the valuation of things we own. (a housing market website) carried out research involving homeowners in 2008. It seemed that they had a good understanding of the current housing market, with 80% of participants agreeing that house prices were falling, including in their own neighborhood.  Despite their knowledge of the current economic state over two thirds of the people surveyed believed that their own homes had increased in price or at least stayed the same.

It’s not surprising that we have a stronger connection to things we own, the more surprising factor is that we still value things more even when we haven’t owned them for very long. Ownership clouds our judgment, we value our possession much more than they are actually worth, and we form new bonds with possessions early, even before they are legally ours. This is just a brief probe into the irrational world of ownership; the literature is rich and well worth reading. Any opinions on ownership are very much appreciated!

One Comment

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  1. Lynn / Oct 20 2011 9:05 pm

    It’s not something I thought about until reading this – but it all makes sense.
    Think this is similar to people ‘boasting’ about how valuable their possessions are – maybe they’re not!

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