How Ownership and Selfishness Are Ruining Your Life

[Olga]

In the second half of the 20th century, cognitive psychology began to develop actively. Before that, psychology was dominated by other approaches like psychoanalysis, which focused on sexuality and unconscious drives, or behaviorism, which concentrated on observable behaviors and reflexes. However, cognitive psychology emerged relatively recently, quickly gaining traction across various fields, including economics.

Traditionally, it was believed that humans are the pinnacle of creation, epitomes of rationality and common sense. But as cognitive psychology started intersecting with economics, it revealed that rationality in decision-making is far less common than previously assumed. This irrationality isn't limited to corporate giants or financial markets; it extends to every one of us in our daily decisions. In recognition of this, psychologists began receiving prestigious awards in economics. Daniel Kahneman, one of the most well-known figures in this field (I recommend you to read The Human Error Machine | Breaking the Illusion of Rationality, along with others like Richard Thaler, demonstrated that our decisions are often driven not by logical calculations but by cognitive biases and automatic, irrational responses.

These irrational behaviors can be traced back to a mix of cultural habits and deeper, evolutionary influences. For instance, we are often quick to judge others who act differently, despite there being no real harm in their actions—this stems from ingrained cultural biases. At a more fundamental level, our brains are wired with biological automatism, shaped by evolution not to make us perfectly rational beings, but to enhance survival. Our brains evolved to help us maximize rewards and minimize losses, not necessarily to make the most logical or fair decisions.

One of the most striking examples of cognitive biases is the "Endowment Effect," ("Ownership Effect") discovered through experiments by Kahneman and Thaler. In a classic study, students were divided into two groups. The first group received a free mug with the university logo, which delighted them. The second group was simply offered the chance to buy the same mug. Predictably, those who got the mug for free were much happier than those who were asked to pay for it. But the real twist came when those who had received the mug were later asked if they would sell it back. The prices they demanded were significantly higher than what the buyers were willing to pay. The mug’s perceived value skyrocketed simply because they owned it, illustrating how ownership can inflate the value of objects, even when no effort was made to acquire them.

This phenomenon is not just limited to objects but extends to our actions and feelings. In another experiment, children were asked to kick each other under a table with equal force. Despite the instruction to maintain an equal level of force, the children inevitably escalated their kicks. Each child perceived their pain as greater and thus retaliated harder, leading to an ever-increasing cycle of aggression. This illustrates how personal suffering feels more significant than someone else’s, even when the objective impact is identical.

The endowment effect shows that anything we possess automatically gains more value because it’s “ours.” Biologically, this makes sense: acquiring something often requires effort, risk, and energy expenditure, making it seem more valuable once it’s in our hands. The familiar proverb “A bird in the hand is worth two in the bush” captures this sentiment perfectly. In modern terms, spending your own money feels more painful than spending borrowed money because you are directly parting with something that is “yours.”

This effect becomes problematic when combined with rising levels of individualism and entitlement in modern society. In the past, resources were scarce, and societal norms and pressures guided people’s behavior. But today, with a significant rise in wealth and accessibility, especially for younger generations, we are seeing an increase in egocentric behavior. Children grow up with easy access to material goods and entertainment, often without the same sense of having to earn what they receive. Parenting styles have shifted from strict, authority-driven approaches to more permissive, child-centered ones, where the desires of the child often come first.

The result is a growing sense of entitlement and a lack of perspective on the value of shared resources. The broader societal structures that once helped curb individual excesses, like community expectations or collective experiences, are weakening. Social media amplifies these tendencies by constantly displaying the highlights of others’ lives, creating a relentless cycle of comparison and dissatisfaction. It’s no longer enough to have something; it must be as good as or better than what others have, leading to a perpetual sense of inadequacy.

Cognitive biases like the endowment effect are natural but can have destructive outcomes in our hyper-individualistic culture. We often fail to see the needs and contributions of others, focusing solely on our desires and perceived shortcomings. This creates a societal fabric where cooperation and empathy are weakened, and people struggle to connect meaningfully because they are too wrapped up in their own experiences.

Thoughts on this

The insights from cognitive psychology are not just fascinating but crucial for understanding the world today. The endowment effect, loss aversion, and other biases show that our decision-making is deeply flawed in ways that impact everything from personal finance to global economic policy. These biases can exacerbate selfish behavior, making it harder for individuals to act cooperatively or with empathy. In an age where connectivity and shared resources are more critical than ever, understanding and mitigating these biases could help us build a more compassionate society. 

Cognitive psychology reminds us that our brains are wired for survival, not necessarily fairness or logic, and this has profound implications for how we interact with the world. It’s a call to be more aware of our mental shortcuts and strive for decisions that are not just advantageous to ourselves but also fair and considerate of others. If we can learn to manage our biases, there’s hope that we can foster a more empathetic and less ego-driven society.