Endowment bias due to modern capitalism?

David Berreby has this fascinating post summarising this paper on what drives endowment bias.  What is endowment bias? There is a cup to be traded. AS a buyer you are willing to pay Re 1 for it but as a seller you want Rs 5 for the same cup. If one believes in markets, then price of the cup should be same whether you are a buyer or seller. This is called endowment bias where you value something more just because you owe it. This is one the classic anomalies pointed by behavioral economics.

The question is what drives this bias? In this experiment on hunter gatherers they start to show endowment bias as exposed to markets:

….in this paperCoren Apicella, Eduardo Azevedo, James Fowler, and Nicholas A. Christakis found that some people and some minds don’t have this bias at all. Rather than being built-in to human nature, they write, the endowment effect may be a habit of mind that people learn in market-oriented societies. If that’s true, it means that (for this trait at least) the hunter-gatherers described in the research were more rational before they were exposed to modern capitalism.

Apicella et al. ran their experiment on 91 Hadza Bushmen, who are among the last hunter-gatherer groups on the planet. In northern Tanzania, where they live, eco-tourism has created an almost-perfect sounding “natural experiment” to test for the effects of contact with modernity, the authors write. This is because some Hadza live near a major road, and have become assimilated into the tourist trade. During the three or four month high season for the tours, 10-20 cars per week will stop at Hadza camps, sometimes hiring Hadza men to take the visitors on hunts. Hadza in this area now make more bows and arrows than they need, so they can sell them to tourists, and they often drop in to a nearby village to buy things with the money they’ve been paid by the tour guides. On the other hand, Hadza who don’t live near the road see very few tourists and aren’t involved in that economy at all.

Hmm.. must be some experience to conduct this study.. Exposing bushmen to modern markets.


It’s a surprise then to find that exposure to market mores would seem to make people less rational. But it’s not impossible to reconcile the findings about hunter-gatherers and experienced traders. Perhaps the endowment effect is created by a casual exposure to market culture—occasionally buying or selling, sometimes watching others. Hadza who have never had this exposure lack the effect. On the other hand, for those who do have the effect, becoming an expert in one market can make it go away. In other words, perhaps the endowment effect is an artifact of moderate exposure to markets. People with no exposure lack it; people with lots of exposure can train themselves to lose it.

In any case, the other important lesson of this paper is that, as ever, theories about “the mind” shouldn’t be based on tests run only on minds that are Western, Educated, Industrial, Rich and Democratic, or WEIRD. And that, more generally, it’s always important to check one’s assumptions about what is innate and universal in psychology. “Whenever a pattern of human behavior is widespread, there is reason to suspect that it might have something to do with our evolutionary history,” a pair of biologists recently noted. True enough, but sometimes patterns of human behavior aren’t as widespread as we want to believe, in our eagerness to spin a theory. (People have, in fact, tried to find a reason why the endowment effect must have evolved to be a part of every human psyche—for example, here.) The attractiveness of such theories should make everyone a little cautious about the generalizations on which they rest.

It will be interesting to get more insights. Even if they get these biases one would like to see impact of markets on other aspects of livelihood too..


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