Fans of ‘90s American hip hop will know the lyric “stop, collaborate and listen”. Well, that line from Vanilla Ice could almost get a modern makeover as a catch phrase for the rise of the “sharing economy” – or what’s known in some circles as collaborative consumption.
As the Urban Times has published previously, collaborative consumption is the trend of sharing goods and services rather than buying your own. It carries challenges – for example, theoretically clashing with the growth ambition at the centre of many economic models – as well as rewards.
As we’ve detailed here, What’s Mine is Yours author Rachel Botsman argues that the internet age is one of the factors giving collaborative consumption a big boost in the 21st century, bringing a modern twist and increasing the scale of bartering, sharing and swapping.
But what eZonomics has been mulling over is how the sharing economy might help break or avoid thinking traps. Thinking traps are the ways people tend to unknowingly make choices that can harm their wealth and reduce their opportunities. The concepts are under the umbrella of behavioural economics, popularised by Predictably Irrational, Nudge and other “pop economics” books.
Avoid that sinking feeling…
Think about the sunk cost trap. This is the tendency to irrationally continue with something because money, time or effort has been invested in it. It might be staying in the cinema right until the credits roll at the end of a movie despite wanting to walk out half-way through because of the money invested in the ticket. Or continuing with a project despite a grim outlook because of resources already sunk into it. A more rational approach might be to choose the path that gives the best future – whether that’s walking out of a movie or suspending a project.
Collaborative consumption – the sharing economy – might help avoid this trap. With a car, for example, using a car sharing scheme instead of owning could remove the risk of continuing to maintain an old or underused car because of expensive repairs undertaken in the past even if it doesn’t make financial sense.
I own, therefore I overvalue
A second thinking trap relevant to the sharing economy is the endowment effect. This is when the mere act of owning something can lead us to value it more than a non-owner would. It can cloud judgement of the true value of a big item like a home or – as a famous experiment demonstrated – something as small as a coffee cup. A danger is that this endowment effect clouds judgement and makes owners reluctant to sell, even when others think it makes financial sense to do so.
Again, the sharing economy – collaborative consumption – might be an avenue to avoid the thinking trap. After all, if you’re renting rather than owning, the emotional connection is likely to be greatly reduced.
Do you fall for it?
This is a different way of thinking about effects of collaborative consumption – and may raise more questions than answers. What do you think of the ideas? Do you fall into thinking traps, such as the sunk cost trap and the endowment effect? Do you think the sharing economy would help?