> Well, the sort of thing you are talking about
>here is known to behavioral economists, but it
>has not really gotten an agreed upon label yet.
>"Inertia" looks like the leading candidate, but
>that is hardly at the level of use or acceptance
>that "endowment effect" is. It is distinct from the
>endowment effect, however.
"Inertia" is how I've described it myself. It is part of the same phenomenon as customer/product loyalty.
> Essentially it is an aspect of bounded rationality.
>People like to continue with existing financial
>arrangements unless they become strongly convinced
>that there is a reason to change them. Lots and
>lots of people in the US, and this includes supposedly
>intelligent and well-educated people, have pension
>arrangements that are simply stupid. However, they
>have them because they were the default option at
>their place of employment and they simply do not wish
>to think about the issue. It is a "waste of their time,"
>or a "nuisance to think about," it "makes my head ache."
Yes.
> This is not a matter of being attached to something
>that you have (like Carrol with his inherited table, or
>me with a baseball card I sold a decade ago to help
>pay for a daughter's college tuition and have regretted
>having done so ever since). It is a matter of not wanting
>to think about something complicated because, well,
>it is complicated. As long as my current setup or situation
>is not too difficult or unpleasant, I'll just go along because
>I don't want to think about things I don't like thinking about.
>And most people really don't like thinking too long and
>hard about financial arrangements.
I'll grant you most of that. Except I think that this is exactly what the "endowment effect" is. It isn't merely sentimental value, as you suppose. The oft quoted example of people being given a mug then asked to name their selling price, or offered to sell a mug and asked to name a purchase price, cannot be put down to sentimental value, because they've only just been given the mug.
The "endowment effect" is precisely that phenomenon of "inertia" you describe above. Sentimental value is a value that people attach to something because it has emotional connections, they associate the object, idea, or arrangement with something in their life they value emotionally.
> I would accept that there may be some kind of
>connection between this "inertia" phenomenon and the
>endowment effect, and I also suspect that there is some
>connection between risk aversion and the endowment
>effect. But these are indeed all three distinct phenomena.
There is a connection between these things. Sentimental attachment to arrangements, ideas and objects can grow out of this inertia. Simply by being there when something else happens.
To some extent, I'm not sure how much, this inertia effect that we see in brand loyalty and so forth can merely be attributed to rational reluctance to pay the cost of switching. Buying another brand is taking a risk the new brand will be unsuitable, as well as requiring the exertion of time and energy to research. Its quite understandable.
There's a lot more than that though, I used to manage a wholefoods store, creating it from scratch. I recall it took over a decade to create the customer base, which is just a matter of attracting regular customers. It takes a long time, but it takes just as long to lose loyal customers, no matter how bad you treat them.
Bill Bartlett Bracknell Tas