We've talked about how to reduce reactants and now we're going to talk about the second key barrier we need to mitigate, and that's easing endowment. Think about the last time your power went out. Using a phone as a flashlight, but worrying it would run out of juice. Having to reset all the clocks once the outage has ended, and if the outage is particularly long, tossing out all that spoiled food in the fridge. Not the most fun situation. Not surprisingly, no one likes power outages, but Pacific Gas and Electric, or PG&E as it's most commonly called, wanted to understand exactly how much people dislike them. They often work to balance reliability and cost. They can invest more in preventive measures, but this would make the service more expensive or they could cut rates, but reliability would likely suffer. So which did customers prefer, greater liability or lower cost? Well, to find out, they surveyed more than 1,300 consumers and asked them which of six power plans they preferred. Some plans are more expensive, but promise fewer and shorter outages, while others were cheaper and involved frequent and longer outages. Not surprisingly, when most people are asked, few of them picked power plans with lots of outages. It meant a four-hour outage at least once a month, more time sitting in the dark, worrying about that food in the fridge going bad, most people said no way. They currently experience around three outages year, so they said they need at least $20 a month discount to move to a service this bad. But one group of people liked the high power outage plan a lot, even though it involved worse service and many outages a month. Why would they prefer less reliable service? Were they older and more price sensitive? Were they poor, which might lead them to prefer cheaper service even if it's less reliable? Nope. The only difference was the status quo, what they were getting already. A small group of people were already experiencing lots of power outages, as many as 15 outages, four hours a year, so they picked a plan that was most similar to what they already knew. Even though for most people, that plan seemed like a terrible option. As we've talked about a little bit already, this status quo bias is everywhere. People tend to eat the same foods they've always eaten, buy the same brands they've always bought, and donate to the same cause as they've always supported. Take someone who just had a heart bypass surgery or had an angioplasty to widen obstructed arteries. Afterwards, they're told to change their diet and lifestyle, often multiple times by multiple doctors, but only around 10 percent actually do. Change is hard because people tend to overvalue what they have already, what they already own, or what they're already doing. Consider for a moment this ceramic coffee mug. It's off-white, it has a nice strong handle, and would be good for drinking any hot beverage of your choice. How much will you be willing to pay for such a mug? What's the most you'd be willing to pay to purchase it? Well, when asked a similar question, people said on average they'd pay a little less than three dollars. It was a nice mug, fine enough, but nothing too valuable one way or another. But they asked a different group of people a slightly different question. These people were shown the same exact mug, but rather than providing their willingness to pay to buy the mug, they were asked to take the perspective of a seller. Imagine you were given this mug and asked the lowest amount you'd be willing to accept to sell it to someone else. One set of people was asked about buying this mug that they didn't have already, and another set of people was asked about selling a mug that they already have. Now if you think about it for a moment, the buying and selling amounts, they should be exactly the same. After all, the coffee mug is exactly the same. So whether you're buying it or selling it, you should have the same valuation for it. It's the same coffee mug, it can hold the same amount of coffee, or tea, or water, or anything that you want, but they didn't. Sellers on average wanted more than twice the amount to part with the mug or a little over seven dollars. Why? Well, it's not just that people are capitalists and want to sell high and buy low, it turns out that once we have something, once were endowed with it, we start to become attached to it and consequently we value it more, this has been called the endowment effect, and it happens all the time. Anything were endowed with, anything we're doing already, tends to be valued more than the things were not. University students, for example, are willing to pay about $200 for Final Four tickets, but students who already had those tickets wanted more than $2,000 to sell them. Memorabilia dealers who are selling the same baseball card valued it more if they owned it than if they didn't, and whether considering time, intellectual property, or a host of other things, people demanded more to give those things up, than to acquire them. Ownership even increases the value of beliefs and ideas. When something is ours, when it's mine, we value it more. In fact, the longer people own or do something, the more they value it. The longer homeowners have lived in a home for example, even controlling the actual value of home, the higher they value it over market price. The more they become attached to it, and the harder it becomes to give up. So how do we ease this endowment then? How do we get people to give up or at least release their attachment to things they already have. Well, three key ways to do that are surface the cost of an action, burn the ships, and to frame new things as old ones.
