In case anyone wonders what Shawn does....

Taken from his blog for his lab.
The Blu-ray player I “almost” owned…

On Saturday my family and I participated in a charity walk-a-thon in our town. This was the first of many scheduled events for our weekend and so we were forced to run before the prize drawing. This seemed like a wise decision as the odds of being in trouble with my wife if we arrived late for the kid’s soccer games were, in my estimation, much greater than for winning one of the major prizes. My calculations were wrong. Not 30 minutes after leaving a friend texted to tell us that had we been in attendance, we would now be the proud owners of a Vizio Blu-Ray player.

Now here is the interesting part: both my wife and I immediately started to feel as if we had lost something. For me (I cannot speak for her feelings), this was not the, “shoot I lost the grocery list” feeling, but more like a “that was my favorite ______________ ever” kind of feeling. It was as if that one moment in which I pictured myself inserting the Transformers 3 disc into this player was enough to enter this player into my personal inventory.

But it was never, actually, mine. I never touched it and I never saw it. Nevertheless, my brain immediately adjusted to the idea that it was indeed mine. And the emotional reaction I felt was similar to how I felt when I discovered that the new “friend” that had stopped by to play with my G. I. Joe collection had walked off with Storm Shadow (just to be clear, this happened when I was a lot younger). The decision to give the Blu-Ray player to someone still at the event was interpreted not as good policy, but as a theft of my property.

Fortunately, research indicates that I am not alone in my irrationality. Research on theendowment effect demonstrates that the value of an item increases once it is viewed as part of our personal inventory. To be honest, the value of the Vizio player, before hearing that I had almost won it, was $0. Nothing against Vizio, but I own two televisions and two Blu-Ray players already. Both of my players are fine systems and I see no need to spend money on a new model. But what if I could have one for free? The added value of a “free” Blu-ray player was much greater than $0. Without having to subtract the cost of the player from the perceived value of the player made it a positive, and thus desirable, gain.

So if I did not value the player and had no real use for it, why did I have such a strong reaction to its loss? Because the “bonus” value of having an extra blu-ray player was offset by the loss I felt at having it taken away from me. This reaction is well described by Kahneman & Tversky’s Prospect Theory that argues losses weigh heavier than gains. My happiness evaluator started out not valuing another Blu-ray player, added the value of the potential prize, and then had to subtract the value of having the prize taken from me. Because the loss associated with the player was greater than the perceived gain my happiness evaluator ended up in the negative. The result? I spent the next hour mourning the loss of the Blu-Ray player that was “almost” mine!