The Endowment Effect meets software development

I believe in the Endowment Effect. That’s an economic hypothesis that says that people place a higher value on things they already possess, compared to its nominal value if they didn’t already possess it.

Imagine if you own a 2005 Toyota Camry, and someone offered to swap it outright for a 2007 Toyota Camry. Would you do it? You’d be getting a more valuable car. The answer? Probably not. Or someone offers to replace your favorite watch, or your favorite leather jacket, with one that’s more valuable. Would you?

We grow attached to what we have – even if we have the opportunity to “upgrade.” There are good reasons for this behavior. One reason is, we want to minimize our unknowns. We already know our car and have come to term with its quirks and defects. Even though the newer car may be more valuable, its possible quirks and defects might be ones that we won’t accept. The new watch might not keep accurate time. The new leather jacket may not fit as comfortably.

Another is that we feel that we are invested in our decisions. We rationalize why the 2005 car is a “better” car, why the watch we have is a “better” watch. We say that monetary value isn’t everything, because we weren’t looking to sell them in the first place. Their value to us is in their utility and the pleasure they provide, not what they’d fetch on eBay.

Yet sometimes, the Endowment Effect might have a negative effect. Consider the choice of tools platforms, deployment targets, programming languages, reusable component suites, methodologies, even service providers. We have an emotional and financial investment in what we’re using. We’ve spent time learning and training. We’ve justified to ourselves (and our teams, partners and managers) that we’ve made the very best choices, and we’re going to stick with what we’ve got.

The reality is, however, that technology moves on. Yes, the best choices for our business two years ago, or five years ago, may still be the best choices today. But then again, they may not be the best choices.

All too often, we decline to evaluate new choices, insisting, “We did our evaluation, we made up our mind, and we’re sticking with it.” That’s fine when it comes to personal possessions. However, in a business context, we should be more open-minded. Perhaps we like our older car – or our familiar toolchain – and it could be uncomfortable to change on the short term. But maybe, just maybe, a different one might be a better choice.