Willie Nelson is one of America’s most cherished singer-songwriters and also dabbles in the world of poetry, acting and activism. He’s also been quite successful in these fields, so much so that you probably recognised his name even though you may not be able to name a great deal of his work. You’d think all this success would suggest that Willie Nelson probably equips himself with the finest and most expensive instruments available when performing his beloved folk music right? Well no, in fact, he uses an old broken guitar. Why? The Endowment Effect.
The Endowment Effect is a behavioural economics concept which states that people place a greater value on an item simply because they own it. Behavioural economics is a field of study that combines both economics and psychology. It can help explain why people tend to make irrational decisions that classical economic theory states they shouldn’t. So, you would assume that if you were a musician who spent his whole life trying to be successful that once you finally became successful you would trade that old tattered guitar in for a new one. However, this discounts for the role that sentiment can have on our decisions.
Yes, Willie Nelson’s old broken guitar with a hole in it probably wouldn’t sell for much in a shop if it wasn’t for the fact that it was his guitar, but Nelson probably places an awful lot of value on it due to fond memories he has with it. He probably wrote his first few songs on it and performed his first few concerts using it and has probably become accustomed to it down through the years, so to him even though it has a hole in it, it’s still quite valuable. So much so that he continues to use it today.
The Endowment Effect is the same reason you probably still hold on to that old teddy bear you have from your childhood or that wristband that acted as admission to your first music festival a year ago.
by Daragh O’Leary