When in doubt, sell

It seems that Bildungsroman has sold her books in Costa Rica, after an agonizing Auseinandersetzung over the matter.

I know not the details of this case, but empirical economics suggests a lesson.  Endowment effects are significant, especially for people who are not professional traders  of the item in question.  That means we tend to value things more, simply because those things are ours.

With some probability, that tendency is just plain irrational.  It might make sense to treat our friends or our babies this way, or to act this way in a subsistence economy, but endowment effects should not rule the behavior of not-so-risk-averse well-off,  Americans.  So if you are even considering selling something, you probably should do so.   

Bye, bye books.  And don’t buy another commodity, invest in memorable experiences.

I might add that when it concerns equities, buy and hold is better than portfolio turnover.  For second best reasons, people would be better served by a stronger endowment effect; greater possessiveness would cancel out their mistaken belief that they can beat the market.

Addendum: I believe that endowment effects are stronger for items we have paid for or won through competitive effort.  This means that your kid should pay for some of his or her college education, read more here.

Comments

Comments for this post are closed