Predictably Irrational by Dan Ariely

Author:Dan Ariely
Language: eng
Format: mobi, epub, pdf
Tags: Non-fiction, Sociology, Psychology, Business, Science
ISBN: 9780061353246
Publisher: Harper Perennial
Published: 2008-03-03T00:00:00+00:00

Reflections on the Challenges of Ownership

In 2007 and 2008, home values across America plummeted as fast as George W. Bush’s approval ratings. Each month brought with it more bad news: more foreclosures, more new homes for sale in a stagnant real estate market, and more stories of people who couldn’t get mortgages. Results from a study by Zillow.com (a Web site that facilitates home searches and price estimations) illustrated just how strongly this news affected home owners: in the second quarter of 2008, nine out of ten home owners (92 percent) said there had been foreclosures in their local real estate market, and they were concerned that these foreclosures had lowered home values in their neighborhoods. Moreover, four in five home owners (82 percent) did not see much hope for improvement in the real estate market in the near future.

On the face of it, Zillow’s research suggested that homeowners had been paying attention to the media, had an idea of what was happening in the economy, and understood that the housing crunch was a reality. But this study also found that these seemingly well-informed people believed that the values of their own homes had not decreased as much. Two out of three home owners (62 percent) believed that the value of their own home had increased or stayed the same, and about half (56 percent) planned to invest in home improvements, even as they watched the housing market collapse around them. What explained the wide gap between their inflated perception of their homes’ values and the gloomy market reality?

As we discussed in Chapter 8, ownership fundamentally changes our perspective. In the same way that we think our own kids are more wonderful and special than our friends’ and neighbors’ children (regardless of whether our children deserve such esteem), we overvalue everything that we own, whether it’s a pair of basketball tickets or our domiciles.

But home ownership is even more interesting and complex than, say, the regular case of owning a coffee mug or a pair of baseball tickets—because we invest so much in our houses. Think, for example, about all the changes and tinkering we do to our homes once we move into them. We replace laminate countertops with granite. We take out a wall and install a new window that lets the light shine just so on the dining room table. We paint the living room walls a deep earthy clay color. We change the bathroom tile. We add a porch and install a koi pond in the backyard. Little by little, we make changes here and there until the house feels perfectly tailored to our unique individual tastes, until it expresses our elegant or eclectic sense of style to everyone else. When the neighbors come over, they admire our countertops and light fixtures. But in the end, do other people value the changes we have so lovingly made as much as we do? Do they value these changes at all?

Consider a home owner who compares her own beautifully

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