Scientists discover why a bird in the hand is worth two in the bush
June 11, 2008
Roger Highfield / Telegraph


The reason that a bird in the hand is worth two in the bush has been found by scientists.

We overvalue what we have and undervalue what we don't have but the underpinnings of what psychologists call the "endowment effect" have never been fully explained.

"While the endowment effect occurs regularly and robustly in both laboratory and natural settings, the psychological and neural mechanisms underlying this effect remain unclear," says Dr Brian Knutson from Stanford University.

In the journal Neuron, Dr Knutson and colleagues describe how they used scanning to study subjects' brains while they were asked to buy certain products, sell other products given to them before the experiment, and choose between yet other products and cash.

The researchers focused on three brain regions, the nucleus accumbens (NAcc), which is linked with the prediction of monetary gain and product preference, the insula, which is associated with the prediction of monetary loss, and the mesial prefrontal cortex (MPFC), which is implicated in updating initial predictions of monetary gain.

One of these regions, the right side of the insula, was linked with the "bird in a hand" effect.

Taken together, these results indicate that the endowment effect has more to do with fear of losing a desired possession than wanting it in the first place.

In this way, "Neuroscience methods can advance economic theory," concludes Dr Knutson.

For efficient trade, sellers often have to reduce the price they are willing to accept, while buyers have to increase the price they are willing to pay (it almost never goes the other way), he explains.

"If sellers suffer from the endowment effect and are unable to reduce their prices, they will perish in the free market. Such dilemmas are common for instance in selling a house," he tells the Telegraph.

"Our findings suggest that one solution to the problem might be to get experience in selling (and losing) the commodity. In the cases of houses, getting this kind of experience can be expensive."

"Another solution may be to pay someone else who is not afraid of losing your house to sell it for you. This may provide one justification for hiring professional house sellers."