We know it well now, but it used to be assumed that people made economic choices rationally. But one man won a Nobel Prize for proving this to be wrong. Richard Thaler, who came up with the idea of mental accounting, set up an experiment. He gave half the class a free mug, and nothing to the other half. The mug owners were allowed to sell the mugs to the ones without. You would expect rational behaviour of selling the mugs, as it is automatic profit. But it turns out that having something makes you overvalue it. This is the endowment effect. Not all of the mug owners would sell their mugs at the price negotiated. The mug owners valued their mugs double to what the mug buyers wanted to pay. Interesting, right?
We have a lot of wrong ideas when it comes to our mental accounting. Not all days work are equal. We are more likely to spend more with a credit card than with cold hard cash. So it leads me to a couple of other ideas. Is this why hoarders get sentimental about their stuff? And if you have something, make sure you don't overvalue it, and get rid of it for a reasonable amount, probably half of what you think you deserve!
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