The adage goes like this: an only child doesn’t like to share.
Well, I don’t like to be defined by old adages. Even as a young child I knew my “sharing skills” were going to be judged with more scrutiny than other kids. I’ve always done my very best to overcompensate on the sharing front.
If I showed you a list of all the things I currently have ‘lent out’ you’d believe me. I can count around ten people in my life that have one or more of my items. A sweater, a pair of leggings, etc. YOU KNOW WHO YOU ARE! The lending time ranges from a few years to two months since I saw my zip-up.
How is it possible that all these people just forgot to give me my stuff back? I’m a poor student, for goodness sake, I need clothes!
Scholars have many ideas about the psychology of borrowing… money. Maybe there is something in this field that helps explain my friends’ borrowing behaviour.
- The blind spot. When it comes to loans between friends or peers, borrowers and lenders recall loans differently. Research has found that borrowers self-servingly rewrite their memories where they perhaps think they paid off more of their loan than they did. Without the formality of a contract, interest, and perhaps without some key details like a specific date of repayment, the details can become shifted in the respective party’s memories. This is a form of egocentric bias, and it has been found on the part of borrowers in research by Lowenstein and Gezso (2012). In the field of psychology it is widely acknowledged that memory is highly reconstructive, and this opens the door for some amazingly powerful self-serving biases to shift the content of one’s memories to reflect more positively upon his or herself. Some other self-serving, egocentric biases include the belief that what is good for us is objectively fair, the motivation to see ourselves in a positive light, and that when good things happen to us it’s because of our own efforts rather than luck. In some cases, borrowers reconceptualise the loan as a gift (which I really hope isn’t the case with any of my friends… guys, I need my stuff back!). In the study, Lowenstein and Gezso found that fewer borrowers reported incidences of delinquent loans than lenders. Thus more often than not people tend to remember the loans they give and forget the ones they get. Great.
But that’s about money. Money has different psychological properties compared to stuff. Dan Ariely found that the further removed something is from “money”, the more it changes behaviour. For example, in a study about cheating, he found substituting tokens for money made people more freely willing to cheat (steal) and not think of themselves as a bad person. Although stealing and borrowing are not the same (or are they?) there is a strong sense of morality at play in both cases. The fact that I’m lending something other than money might hurt my chances of getting it back even more. Here’s a reason why:
- The Endowment effect. This is the principle in behavioural economics that people value things more merely because they own it. In one of my favourite experiments in the field conducted by legends Daniel Kahneman, Jack Knetsch & Richard Thaler, participants were given a mug and offered the chance to sell or trade for a good of equal value. The experiment found that the amount participants needed to be compensated in order to sell the mug was twice as high as they were willing to pay for the mug in the first place – just because they own it! How does this apply to lending: I own that hoodie, so naturally I value it more than you do. It means something to me. It doesn’t mean as much to you. Because you don’t value it as much, you don’t think about how important it is to get it back to me. Thanks a lot… NOT.
Research by Lowenstein and Gezso also looked at the impact of personal lending on the relationship between lender and borrower. There is an opportunity for the strengthening of friendship because informal loans rely on trust between lender and borrower and can show generosity on the part of the former and respect on the part of the latter. But trust can also be violated, and threaten the relationship in the first place. They write that the violation of trust could lead to mutual hostility, ending friendships, and distrust. This threat of social punishment – the potential loss of a friendship – is what motivates me to give back what I’ve borrowed as fast as I can since intuitively I know that the lender values the loan greater than I do. This threat does not seem to motivate everyone the same way (my story is evidence of that).
To my borrowers: don’t worry, I still like you. Can I have my stuff back now, please?
Dezső, L., & Loewenstein, G. (2012). Lenders’ blind trust and borrowers’ blind spots: A descriptive investigation of personal loans. Journal of Economic Psychology, 33(5), 996-1011. Dye, Lee. (26 July 2012) Why It’s So Dumb To Lend Money To A Friend. ABC News. http://abcnews.go.com/Technology/borrower-lender-scientists-explain-loan-friend-dangerous/story?id=16857078
Goldstein, Noah, J., Ashley N. Angulo, and Michael Norton (2013) ,”The Psychology of Borrowing and Lending”, in NA – Advances in Consumer Research Volume 41, eds. Simona Botti and Aparna Labroo, Duluth, MN : Association for Consumer Research.
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. The journal of economic perspectives, 5(1), 193-206.
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coase theorem. Journal of political Economy, 98(6), 1325-1348.
 A nice concise summary here: http://danariely.com/2008/02/01/societe-generale-%E2%80%93-behavioral-economics-at-work/