storing tractor for years

[Geotech]

Moss,

the endowment effect is a phenomena that occurs where a person values a possession more when they already have it as opposed to if they didn't. If I gave you a coffee mug, you would value it more once you had it in your possession than if you never had it. Nothing to do with buy low and sell high. Perhaps the linked article is poorly written. I didn't read it. I did just read a book by Richard Thaler (Nobel Prize in Economics winner) called Mis-Behaving. He discusses the endowment effect in layman's terms at length. Good read if you're interested. Other interesting topics also discussed.

 

[MossRoad]

Moss,

the endowment effect is a phenomena that occurs where a person values a possession more when they already have it as opposed to if they didn't. If I gave you a coffee mug, you would value it more once you had it in your possession than if you never had it. Nothing to do with buy low and sell high. Perhaps the linked article is poorly written. I didn't read it. I did just read a book by Richard Thaler (Nobel Prize in Economics winner) called Mis-Behaving. He discusses the endowment effect in layman's terms at length. Good read if you're interested. Other interesting topics also discussed.

I read the article. It said people were less willing to pay for something than it was actually worth, and less willing to take the actual value price for something they were willing to sell. That's buy low, sell high.

 

[Geotech]

I read the article. It said people were less willing to pay for something than it was actually worth, and less willing to take the actual value price for something they were willing to sell. That's buy low, sell high.

Not exactly... It is highly unlikely OP would go out and buy that tractor today at below market price (comparable to the price he paid) just so it could sit in storage for years. That is not "buy low sell high" , that is the endowment affect and it is completely illogical. But it is part of everyone's nature.

From your posts I have read, Moss, I expect you can understand the difference - it may just be a concept that is not easily explained in a brief Wiki article or internet forum post. I highly recommend the book "Mis-Behaving" if you are even remotely interested in behavioral economics. I personally find it very interesting and entertaining.

 

[quicksandfarmer]

I read the article. It said people were less willing to pay for something than it was actually worth, and less willing to take the actual value price for something they were willing to sell. That's buy low, sell high.

The endowment effect is holding on to stuff simultaneously believing that you could never sell it for what it's worth and you could never buy another for that price. It's illogical, and human nature.

Think Beanie Babies.

I have a house with a garage and a basement and two barns. They're all full of junk. I'm constantly trying to get rid of stuff, but when I start sorting through I find myself saying, "well, I could use that someday." I find it helpful instead to say, "if I were driving down the road and that was on the side of the road with a sign that said 'free,' would I stop and pick it up?" In other words, if I didn't already own it, would I value it? Usually, the answer is no.

There are confounding factors. Often disposing of things takes effort and money. There are things that you might need on short notice, where the value of having them on hand exceeds the cost of storing them. There are things that are genuinely hard to acquire -- but that can be a endowment effect trap.

 

[MossRoad]

Examples Edit

One of the most famous examples of the endowment effect in the literature is from a study by Daniel Kahneman, Jack Knetsch & Richard Thaler,[4] in which participants were given a mug and then offered the chance to sell it or trade it for an equally valued alternative (pens). They found that the amount participants required as compensation for the mug once their ownership of the mug had been established ("willingness to accept") was approximately twice as high as the amount they were willing to pay to acquire the mug ("willingness to pay").

Other examples of the endowment effect include work by Ziv Carmon and Dan Ariely,[5] who found that participants' hypothetical selling price (willingness to accept or WTA) for NCAA final four tournament tickets were 14 times higher than their hypothetical buying price (willingness to pay or WTP). Also, work by Hossain and List (Working Paper) discussed in the Economist in 2010,[6] showed that workers worked harder to maintain ownership of a provisional awarded bonus than they did for a bonus framed as a potential yet-to-be-awarded gain. In addition to these examples, the endowment effect has been observed using different goods[7] in a wide range of different populations, including children,[8] great apes,[9] and new world monkeys.[10]

They want to pay for something for less than it's worth, and they want to sell something for more than it's worth.

By low
Sell high

 

[quicksandfarmer]

They want to pay for something for less than it's worth, and they want to sell something for more than it's worth.

By low
Sell high

Wanting to buy low and sell high is rational behavior. What's missing is that people's perception of value is irrational -- they overvalue things they already own, and undervalue things they don't own. So people look at the market price of an object, and if they're buying they think the price is high -- they don't own it, so they undervalue it. If they're selling, they think the price is low -- they overvalue things they own. So they look at market-price transactions as buying high and selling low.

 

[Geotech]

Quicksandfarmer,

Some people are tone def - I wouldn't try explaining the difference to Moss any further. Never mind the Nobel prize winning work that has uncovered the endowment effect. From just one Wiki article, Moss has already distilled it down to its essential essence in his own expert opinion. The rest is just a bunch of academics who don't know nuthin bout no real life. This is a tractor forum after all...

I do compliment you on your explanation and also the inclusion of confounding factors. Always nice to come across people with shared interests in unlikely places.

 

[MossRoad]

Wanting to buy low and sell high is rational behavior. What's missing is that people's perception of value is irrational -- they overvalue things they already own, and undervalue things they don't own. So people look at the market price of an object, and if they're buying they think the price is high -- they don't own it, so they undervalue it. If they're selling, they think the price is low -- they overvalue things they own. So they look at market-price transactions as buying high and selling low.

Value, like beauty, is in the eye of the beer holder. I think we've all seen a few episodes of those picker shows where someone cannot bear to part with something no matter the price. For no amount of money will they sell something. It's not because they put a monetary value on it. It's because it has sentimental value to them, not monetary value. Some people see that as irrational. I don't. If you want to keep something, who's business is it to judge them? Now if you get a hoarder, and the accumulation of stuff is a health and well being issue, that's different. But hanging on to a coffe cup, or tractor, is not irrational behavior.

If you want to talk about strictly owning an object, and overvalueing it when we own it, and undervalueing it when we don't, that goes back to the barter system. Get as much as you can for the lowest cost, and hold out for as much as you can. It's human nature. It's not irrational.


Define value. There's several uses for the word.

value
noun
1.
the regard that something is held to deserve; the importance, worth, or usefulness of something.

I value my great grandfather's old handsaw. Why? It's old and wouldn't bring $2 at an antique market. Because it's importance to me is that it reminds me that he was a carpenter. His hands were on it. He used it to build many houses that are still standing. It reminds me of the hard work he did to provide for his family. And I think of that every time I pick it up. There's nothing irrational about my perception of its value.

When I croak, the wife and kids will toss it in the trash or sell it at a grange sale. It has no value to them and I'm fine with that.

Maybe the OP, who asked how to store a tractor, not to be psychoanalyzed, just wants to keep the machine?

 

[MossRoad]

Quicksandfarmer,

Some people are tone def - I wouldn't try explaining the difference to Moss any further. Never mind the Nobel prize winning work that has uncovered the endowment effect. From just one Wiki article, Moss has already distilled it down to its essential essence in his own expert opinion. The rest is just a bunch of academics who don't know nuthin bout no real life. This is a tractor forum after all...

I do compliment you on your explanation and also the inclusion of confounding factors. Always nice to come across people with shared interests in unlikely places.

Oh, it's not my expert opinion....

What's Wrong With The Endowment Effect - Business Insider

From the article:
" the Endowment Effect may really be a response to the counterparty risk faced by early humans. The Behavioral Economists have focused on the wrong thing: the value of possessing an item, rather than the real issue, the cost of trading with other independent agents."

and

"The Endowment Effect Experiments Were Misleading
You can see how the Behavioral Economists were misled by their own experiments to read evolutionary counter-party risk discounting as an Endowment Effect. In their experiments, no counter-party risk existed. But they were testing subjects who had deeply ingrained, hard-wired counter-party risk discounting built into their behavior. The conditions of the experiment left out the actual conditions of the real world that condition human behavior. And it turns out that humans in Behavioral Psychologist labs act a lot like humans outside the labs. So the Behavioralists missed the fact that it wasn't Endowment that was creating value - it was that trading was understood to be risking value."

 

[MossRoad]

:reading: