In behavioral finance, the endowment effect refers to one’s emotional bias that causes us to value things we own at a sometimes irrationally higher value than the market value of such items. I can remember when my parents were moving from my childhood home to a retirement community in Virginia. They clearly needed to downsize. I suspect that because of the endowment effect, I now have a dozen ceramic birds among other treasures which are gathering dust in my attic. I can’t wait to endow them to my children someday.
Another bias we have is known as loss aversion. Simply stated, losses loom larger in our minds than gains. We all know someone who thinks there home is worth more than it actually is worth because at one time, houses were selling for more. While we tend to think of these tendencies with respect to finance, I think that the combination of the endowment effect and loss aversion can also have a profound impact on our everyday lives and are especially magnified during this Covid period.
We have all lost something during Covid. It may be a worry about our health, our jobs, vacations postponed or sports seasons cancelled. If we get stuck in a loop of dwelling on what we have lost or missed out on, it can lead to a high level of stress and anxiety in an already very stressful period. I read an article recently that noted that rather than seeking happiness, we should all be looking for contentment. Think about your goals and avoid being too attached to them. An unhealthy attachment can create dependencies that are beyond your control. For example, if you love to travel but are now sidelined by travel restrictions, it would be easy to dwell on what you are missing. It may be time to let go of those dependencies. As we have noted before, one way to avoid an unhealthy level of dwelling on what you are missing is to develop a mindfulness practice. It requires you to focus on the present and is proven to lower stress levels and calm the body.
Daniel Cordaro, the founder and CEO of the Contentment Foundation, notes that we all have a range of emotions from the pleasant feelings of happiness, elation, and serenity along with emotions we greatly dislike such as shame, sadness, despair and rage. Clinging to those emotions is when the problems occur. Cordaro asks “what if, instead of trying to cling to some emotions while pushing others away, you allowed all feelings to come and go? The radical appreciation of all of life’s experiences is a cornerstone to contentment.”
I hope that the current vaccine optimism is warranted and we return to some semblance of normalcy. But, if it takes longer than currently anticipated, employing some of the techniques noted above may help you to reduce your stress lode and to be more content with life regardless of the circumstances.
This week’s selection is:
The Upswing: How America Came Together a Century Ago and How We Can Do It Again by Robert D. Putnam and Shaylyn Romney Garrett
An eminent political scientist's brilliant analysis of economic, social, and political trends over the past century demonstrating how we have gone from an individualistic ‘I’ society to a more communitarian ‘We’ society and then back again, and how we can learn from that experience.