Last time, I paid tribute to the work of Kahneman and Tversky. Let me now give an example of their work that will go to show just how important their insights are to understanding the human condition. My 28th Fable, ‘The Home-Loving Bats’, concerns a colony of these creatures who, offered the choice to move to a much nicer home, vociferously decline, and are doomed by their conservatism to continue living miserable lives. It demonstrates the Endowment Effect, easily demonstrable in experiments that show people to be unwilling to exchange an object they have been given for another of equal value, irrespective of what the gift is. They are even prepared to pay more to keep an object they possess than to acquire one they don’t!
What’s going on here defies rationality: these are not mistakes that Spock would make. On the assumption that human behaviour exists because it has evolved to survive the test of time, one can only infer that this inbuilt conservatism confers some advantage or other, and it’s not hard to guess what that value might be. What we can generally know about the status quo is that it has suited us well enough to sustain us. If we change our normal practice – by, for example, moving to another habitat – there is always a possibility of gain; but there are many more ways that things can go wrong than go right. Just consider the extraordinarily high mortality of early colonists, and you’ll see why most people preferred to stay put.
We see examples of the Endowment Effect in action all the time in public life. I’ve never forgotten the reaction against London Transport’s decision to introduce automatic barriers at all Underground stations. Its reasons seemed to me very good ones: to cut personnel costs, deter ticket evasion, and reduce queues. The uproar exceeded what might be expected from trade unions, fare cheats and people who enjoy queuing. It became very clear that Londoners simply didn’t want a change. LT stuck to its guns, and it’s hard now to imagine that anyone would think twice about it. Indeed, if you were to suggest removing the barriers today, I think you can guess what the response would be. Such knee-jerk intransigence, born of the Endowment Effect, is commonplace. The bugbear of reformers, it can become a very costly matter.
One of the most notorious examples in the world is Britain’s National Health Service, which at present (as so often) is in crisis. The idea of an NHS was suggested as a huge vote-winner for the Labour Party in the first post-WW2 general election. Thereafter it was long presented as the populist jewel in the nation’s crown; as recently as 2012, Danny Boyle made it the centrepiece of the British propaganda served up to a bemused world for the opening ceremony of the London Olympics. Not everyone shared this opinion, even at the start. My own mother, a career NHS nurse, always swore that it had ruined healthcare in Britain, and spoke fondly of the old days when, for sixpence, you could get access to the doctor at any time of day or night, even in your own bedroom.
Nowadays, she is far from alone: you’ll read reports even by doctors arguing that various elements of the NHS are dysfunctional, the cost of treatments having soared so high that they can no longer be afforded, let alone on the scale demanded by a population swollen dramatically in recent years by mass migration and a new baby boom. Anyone who wanted to establish a healthcare system for a brand new nation would quickly scratch the idea off the list and consider more efficient alternatives. Nevertheless: if you even suggest the need to do something radical with Britain’s NHS, you’d better be wearing a hard hat.
The Endowment Effect invariably gives rise to a curious political role-reversal whenever new institutions have been established by those bent on change. If a challenge to such institutions later comes along, their creators become as defensive about their brainchildren as the ideological enemies they’ve supplanted were about their own. This paradox inevitably leads to the development of newspeak in which words are used to mean their opposite. Well before the collapse of European communism in 1989-90, all ruling parties in the Eastern Bloc had morphed from revolutionaries to the epitome of bloody-minded resistance to reform. It was quite customary nevertheless for party-members to speak of their regime as an ongoing revolution, and chastise reformers as “counter-revolutionaries”. When in 1993 the hard-line Communists unsuccessfully attempted to seize back power in Moscow, the BBC bizarrely (but not inaccurately) took to describing them as “Conservatives”.
We have a similarly confused situation in America today, with a demotic revolt against the reforms brought in over the last fifty years by people who still regard themselves as freedom-fighters, socialists or revolutionaries, but are decried by their detractors as self-interested opponents of change. One wonders how much better the world might be if Kahneman and Tversky’s Endowment Effect didn’t so often bar us from opening our minds to mutually beneficial change.