Territorial Behavior
A professor purchases school mugs, selects at random half the members of a group of students, and gives one to each of them. He then asks each student with a mug to state the price at which he would be willing to sell it and each student without a mug to state the price he would be willing to pay for one. Finally, he calculates the market clearing price — the price at which there is exactly one seller for each buyer — and reallocates mugs and money accordingly.
At the end of this process, the mugs should be in the possession of whichever students most value them. Since they were originally handed out at random, we would expect that about half of the students who most valued them would have gotten them and half would not, hence that about half of the mugs should change hands.
In fact, almost none of them did. On average, people value a mug more (about twice as much) when they have it than when they do not. (Kahneman, D., J. Knetsch and R. Thaler, 1991, “Experimental Tests of the Endowment Effect and the Coase Theorem,” Journal of Political Economy, 98, 1990, pp: 1325-1348; reprinted in Richard Thaler, Quasi Rational Economics, pp: 167-188.)
This is known as an endowment effect. On average, someone who owns something values it more than someone who does not. An experiment involving choosing between one package containing a mug and ten dollars and another containing no mug but fourteen dollars reveals inconsistent preferences — whichever package a subject starts with, he prefers it to the alternative.
Some species of animals exhibit territorial behavior. An individual fish, bird, or mammal in some way claims a particular territory for his own and attacks other members of his species that trespass on it. Even if the trespasser is somewhat larger and stronger than the claimant, the claimant usually wins such conflicts — at some point the trespasser retreats. (See Konrad Lorenz, On Aggression, Chapter 3, pp. 23-48.)
Unless the trespasser is much stronger a fight to the death is a losing game for both parties, since even the winner risks substantial injury. The claimant has somehow committed himself to fight more fiercely the closer the trespasser gets to the center of the territory.
It is a familiar observation that a dog will fight harder to keep his own bone than to take another dog’s bone.
Imagine a human society in which each individual considers every object in sight, decides how much each is worth to him, and then tries to appropriate it, with the outcome of the resulting struggle determined by some combination of how much each wants things and how strong each individual is. It does not look like a formula for a successful society. But there is an alternative solution: some method is used to define what belongs to whom. Each individual commits himself to fight very hard to protect his property — much harder than he would be willing to fight in order to appropriate a similar object from someone else’s possession. The result is both a lower level of (risky) violence and a more prosperous society.
Imagine a population in which some individuals have adopted the commitment strategy described above, some have adopted no commitment strategy, and some have adopted different commitment strategies — for example, a strategy of fighting to the death for whatever they see as valuable. Individuals in the first group will, on average, do better for themselves — hence have (among other things) greater reproductive success — than those in the second and third. So the same behavior pattern that shows up as territorial behavior in fish and ferocious defense of bones in dogs shows up in Cornell students as an endowment effect. Behavior that was functional in the environment in which we evolved continues to be observed, even in a context where it now serves no useful purpose.
“Economics and Evolutionary Psychology” by David Friedman