Permission, forgiveness and the endowment effect

Making a significant change for the better is often uncomfortable in the moment. This is why, especially in entrepreneurial circles, one often hears “Ask for forgiveness rather than permission”. In the face of such a change, the idea is to implement the change and then inform the people in charge, rather than to get all the necessary approvals before starting on it.

For instance, as a tech company, it would be better to do a makeover of your app (based on a reasonable hypothesis) and and then get feedback on how well it does, rather than perform in-depth market research before making the change. Or to surprise your spouse with a new recipe for dinner rather than asking her and then making the dish. But why does this seem to work? Why should somebody be more likely to be accepting of a change after it has been implemented rather than before? The endowment effect offers us a hint.

The most popular study of the endowment effect involves coffee mugs and chocolate bars, each worth $5 (both economically and notionally). Participants were randomly distributed these two items, with information about their worth. Soon afterwards, they were given to option to trade the coffee mugs and the chocolate bar among each other. A little later, the researchers asked how much they would like to sell their items for.

Here are the interesting results:
1. Since the assignment of the item was random, we expect about 50% of the participants to exchange their coffee mugs for chocolate bars. In reality, only about 10% were willing to exchange.
2. Most participants were willing to sell their mugs or chocolate bars only for a price of about $10 – double of what they knew those items were worth.

In mere moments, the ownership of these items had instantly increased their worth in the eyes of their owners. Richard Thaler, the father of behavioural economics, called this the endowment effect.

A similar thing happens to the status-quo when we make a change. Once the change is made, we all own the change and are likely to value it more. This difference in value between the old situation and the new one, in many cases, ends up preventing or procrastinating an important but uncomfortable decision. By opting for forgiveness rather than permission, we jump over this chasm to a better state.

Of course, this advice ought to be used with discretion. It does not justify carrying out an unethical action and asking for forgiveness later. All the same, not all uncomfortable changes have negative consequences. And when you embark on one such change, the endowment effect can serve as a lubricant for forward motion.

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