Garmin 405 Endowment Effect
I am currently reading Michael Shermer’s “Mind of the Market”, and I got to thinking…
Prove me wrong. I’ve looked at a lot of running blogs in the last few months. Several of these lucky bloggers have been fortunate enough to have received some products to review on their website. I have not seen anyone who got something for free go on to give it a negative review. If you have, let me know, prove me wrong. I’d have a lot of respect for anyone that was that honest. Let’s face it, the incentive system is to praise the product in hopes that the company may send you some other products to review in the future. The company knows this, that’s why they will often have bloggers review their products. I put my readers to the challenge?
In general, I don’t put a lot of stock in product reviews. I have even written some of my own running product reviews. The reason most product reviews are flawed is because of the endowment effect. The endowment effect states that people value a good or service more once it is in their property. Thus, people value things that they own more than things they do not own. This leads to a lot of reviews that are done with cloudy judgment, as the reviwer is often experiencing self justification.
Check out the RunnersWorld Discussion Thread, constant debates about the Garmin 405 vs. the Garmin 305. Once again, anyone who owns the Garmin 405 or the Garmin 305 is going to be influenced by the Endowment Effect or the Status Quo Bias. They are going to value the watch that they own more highly than the watch someone else owns and the owners of the Garmin 405 (which includes me) are going to be even more influenced due to the increased price of the Garmin 405. My Garmin 405 Review has received over a thousand visits, there are a lot of individuals wanting to find out if the Garmin 405 is worth the upgrade.
I tried to be objective when reviewing the Garmin 405. At the end of my review I stated that I would only upgrade to the Garmin 405 if you are a serious runner and will use the Garmin 405 on a daily basis. The watch has some great features, it looks a lot nicer, finds the satellites faster, but in reality it’s not a huge improvement over the Garmin 305/205. However, I run almost every day, close to an hour, and I’ll generally run about 7-8 hours per week, thus I’ll get more use out of the watch than a recreational runner. I even own Garmin Stock, so my readers will know that I didn’t sell out and say it was a “must have” or “the best watch ever.”
You’re not going to find too many runners who just spent $300-$350 on a Garmin 405, say that it was a complete waste of money. They will rationalize their decision and prove to themselves that it was a smart purchase. It would be interesting to test the endowment effect on runners. The Garmin 405 cost $150 more dollars than the Garmin 305, which is a substantial price difference.
The endowment effect is also why individuals have trouble recognizing a sunk cost. In general, I am pretty quick to cut my losses and I will often hedge my bets. In the past three years, the only running shoe that I hated was the Asics Kinsei, which is also the most expensive shoe that I have ever owned. I ran in that shoe about 100 miles and then turned it into my “Casual Friday Shoe” at work. I wonder how many runners keep running in a shoe, even if they do not like it.
If you want an example of RunColo cutting his losses, check out Nathan Speed 4 Review. I went through two other fuel belts before I purchased the Nathan Speed 4. The Amphipod belt was horrible, the bottles fell out, it cut into my side, etc. The Fuel Belt was adequate, but the Nathan Speed 4 is perfection.
My guess is the endowment effect is even amplified on reviews of books. I mentioned in Once a Runner Review the number of five star reviews on amazon. I’ve noticed that most books have a large number of five star reviews. When you invest hours and hours to read a book, you often want to tell someone how good the book is, due to the time & money invested (sunk cost).
In conclusion, if you’re a runner that hangs on to all of your old running shoes, and your old race shirts you’re probably being affected by the endowment effect. So clean out your closet, donate those old running shirts to Goodwill and toss those old running shoes in the dumpster!
That is a very interesting perspective. I hadn’t really ever thought of the fact that we are all biased in our reviews because we own what we are reviewing. It does make sense that unless we are “expert reviewers” we limit our negative reactions. I will say though that if a person has nothing bad at all to say about a product I tend to disregard the review more than a thoughtful one that includes something negative. (I’m currently looking at digital cameras)
Interestingly, I don’t think this plays into race reviews as much as product reviews. What do you think about that?
Crossn81,
You’re right about race reviews. I think the reason is because people can see that a race review is truly a sunk cost, they ran the race, it’s over with, no way to get your money back. When you possess an object it remains with you, thus for self justification purposes you will rationalize that you made a smart decision.
To be truly objective you need to do a consumer reports type review, where you do not own the product, but are only testing it.
Surely, however, it does not matter what value you personally place on the item, unlike pure opinions, there are undebatable facts behind things like this. The Garmin 405 IS better than the 305 in several areas and that is not up for opinion. Rather, the question revolves around whether the Garmin 405 is worth $150 more than the 305 in current market. Undeniably, according to facts, the 405 should be worth more than the 305; but how much? As far as economic and munitary value is concerned the 405 IS over-priced; but it is a calculated cost made by the company and this over-pricing is quite deliberate. It is not so high as to put everyone off, but not so little that it puts those off who want to feel like they have the best. If it was only $10 more than the 305, some would say, why not, whilst others would say why bother, because the fact that the 405 then would only be marginally more expensive makes its personal value deplete. Furthermore, it makes it more unlikely that the first product would be bought. The method employed ensures that the higher technology is DESIRED whilst being argued about, whilst those with money buy the best (because the price tag makes it appear the best) and those without wait until the price is dropped, without making the initial technology (where no doubt there is a surpless of stock) redundant. The same thing will happen when the 505 comes out. It has little to do with the ‘endowment effect’ and everything to do with the ‘endowment effect’. Though consumers justify their choice because they own the material, there would be no justification without an argument, and that argument is set-up by the companies setting a price margin in the way they do. If the Garmin 405 was valued justly in relation to its technological advancements and the fact that it is smaller and therefore more aesthetically pleasing (because it is less bulky) the product would be priced a lot less than it actually is. But if this were the case there would be no argument and people, whether they originally bought the 305 or not, would feel no ‘endowment effect’ because the 405 would be a valid alternative always. Because the 405 is so much more expensive than the 305 sets up an argument, ensures people buy the 305 because of personal values of their own (what you call the ‘endowment effect’) and ensures than others buy the 405 because they want to feel that they own the best. End result, the company has people talking about their products and debating their value giving them profile. The company can get rid of cheaper, but still profitable, older stock. The company sells a few newer stock but is currently developing the newer modal and waiting for the 405s price to drop so they get more buyers as the cycle repeats.
But in regards to your initial points that reveiwers are more likely to give a product a good reveiw if they are provided with free equipment. Or that they are more likely to give a good reveiw if they are paid for it. My question is, why label this as ‘endowment effect’? Surely it is common sense that they would, especially in the hope for further deals, wouldn’t you?
My other point is that you say that the fact that the ‘endowment effect’ exists minimalises objectivity in a review. I have never seen a review that is 100% objective, because almost nothing is objective. People make up their own minds (within a set of social boundaries, rules and, to an extent, one may argue, not always), and that is the point entirely.