The Psychology of Property Law

Stephanie M. Stern, Daphna Lewinsohn-Zamir

• Publisher: NYU Press
• Year: 2020
• ISBN:
  9781479873500
• Topic: Psychology
• Subtopic: History & Theory in Psychology
• Index: Psychology

Part I

Rights in Property

1

Ownership and Possession

Ownership is the greatest possible interest in an asset that the law recognizes; it typically consists of several rights, including the rights to possess, use, manage, exclude others from, transfer, and destroy the asset (Honoré 1961, 108–24). Possession is commonly said to consist of two elements: control over an asset and an intention to exercise such control. The possessor of a thing may be its owner or some other person (Lawson and Rudden 1982, 41–44), and the latter may possess the asset either legally (e.g., as a tenant or a bailee) or illegally (e.g., as a trespasser).

In this chapter, we offer a behavioral analysis of certain key aspects of ownership and possession. Furthermore, we highlight the existing gaps in the psychological and legal literatures on ownership and possession and the ways in which they may be filled. In doing so, we demonstrate the potential for mutual enrichment between the fields of law and psychology. The chapter opens with a general discussion of the psychological significance of ownership and possession. Following that, it explores people’s perceptions of ownership and possession. Among other things, we show how people’s notion of possession is not necessarily “physical” but may extend to intangible entitlements and expectations as well. This state of affairs may justify a broadening of the law’s understanding of possession. We also analyze the relative strength of ownership and possession, which is highly relevant to legal conflicts between owners and possessors of property. Finally, the chapter addresses various rights that property owners enjoy, and their limitations. Specifically, we suggest psychological justifications for seemingly paradoxical legal rules, according to which owners have more freedom to use their property intensively than to refrain from using it at all, more freedom to restrict the transfer of property totally than to subject it to conditions, and more freedom to destroy the property fully than to modify or change it.

The Significance of Ownership and Possession

Why do people place high value on the property they own and/or possess? Psychological studies offer various explanations, which are not mutually exclusive. Here, we focus on the two most influential accounts.

The first account is commonly connected to the “endowment effect” (EE), which is one of the best-known and robust phenomena found by behavioral studies. Numerous experiments in a wide variety of settings have shown that people value an entitlement or object they already have much more than an identical entitlement or object they have an opportunity to acquire. Specifically, individuals demand a significantly higher price to give up an existing asset—such as a coffee mug—than they are willing to pay in order to purchase it in the first place. The divergence between the former price, often referred to as “willingness to accept,” and the latter, commonly called “willingness to pay,” may reach up to many times the lower value (Camerer 1995, 665–70; Kahneman, Knetsch, and Thaler 1990, 2008; Knetsch and Sinden 1984; for surveys of the literature on the EE and various explanations for this phenomenon, see Marzilli-Ericson and Fuster 2014; Morewedge and Giblin 2015; Zamir 2015, 21–28).1

A major explanation for the EE is loss aversion. Parting with an entitlement is perceived as a loss, whereas acquiring the same entitlement is viewed as a gain. The loss in utility from giving up an entitlement is larger than the gain in utility from receiving the same entitlement. Since losses loom larger than gains, people’s selling price is significantly higher than their purchase price (Kahneman 1992; Korobkin 2003, 1250–55; Marzilli-Ericson and Fuster 2014, 560–61, 574; Zamir 2012, 835–40).2 According to this account, the EE does not result from the enhanced attractiveness of an asset that one owns; rather, it represents the pain of giving it up. This explanation was supported, for example, in an experiment by Kahneman (1992). Half of the participants were given attractive pens, while the others were given a token, redeemable later for one of several gifts (including a pen and a Swiss chocolate bar). All participants were asked to rank the relative attractiveness of these gifts. After completing the ratings, all participants were asked to choose between receiving (or keeping) a pen and two chocolate bars. Fifty-six percent of participants in the group endowed with pens at the outset preferred a pen, while only 24 percent of the other group members chose pens. Notably, the attractiveness ratings revealed that the former group did not rate pens as more attractive than the latter group.

The second central explanation for people’s high valuation of their property was coined the “mere ownership” effect (Beggan 1992). Beggan discovered that individuals are biased in favor of an object and rate it as more valuable just because they own it (and regardless of whether they are about to part with it). He argued that people seek to maintain a positive self-image, and given the psychological association between possessions and the self, they overvalue the objects they own (Beggan 1992, 235; see also Gawronski, Bodenhausen, and Becker 2007; and Ye and Gawronski 2016, who emphasize the connection between positive self-perception and valuation of one’s chosen—rather than randomly received—objects). This desire to enhance one’s positive image is intensified when the image is threatened, such as by experiment participants’ failure in an assigned task or remembrance of a failed social relationship. Thus, a decrement in self-image increases the magnitude of the mere ownership effect (see, respectively, Beggan 1992, 233–34; Dommer and Swaminathan 2013). In addition, self-enhancement through the valuation of one’s assets extends to interpersonal relations: individuals not only enhance themselves when comparing themselves with others but also enhance their possessions when comparing them with other people’s possessions; they associate more positive traits with their own possessions than with others’ possessions (Nesselroade, Beggan, and Allison 1999).3

Importantly, the “mere ownership effect” appears to be a general phenomenon; it is not limited to certain types of assets but has been observed even with respect to trivial and mundane objects, such as a cold drink insulator.4 Furthermore, the emergence of this effect does not necessarily depend on lengthy exposure to the asset (LeBarr and Shedden 2017) or familiarization with its characteristics. For instance, De Dreu and van Knippenberg (2005) found a mere ownership effect with regard to an intangible asset—arguments to be used in a debate—not only when participants saw these arguments beforehand but also when they did not know the content of the arguments and were just informed that they “owned” a certain set of arguments (which they could then decide to sell) (see De Dreu and van Knippenberg 2005, 347, 355–56). These findings suggest that the increased value attributed to one’s possessions is not only due to perceptions about their substantive features.

Likewise, Belk (1987, 1988) and Dittmar (1992) offered extensive evidence to support the claim that people often regard their possessions as part of their identity or extended self. The perception of possessions as part of one’s self is not limited to objectively unique assets but extends to fungibles (including money) and to everyday items—such as electronic and sporting goods, grooming products, clothing, books, furniture, and vehicles (Belk 1987, 156–59; Ahuvia 2005; Dittmar 1992, 129–54; for a distinction between the private and public meanings of possessions, see Richins 1994).5 This phenomenon is created in various ways, such as through controlling, creating, or knowing an asset (Belk 1988, 150–51, 155). Thus, a regular bicycle may invoke pleasant memories, a standard chair may be associated with a loved person who sat in it, and ordinary athletic equipment may symbolize skills and talents.6 Belk (1988, 142–43) explained that involuntary loss of such possessions—for example, by theft, natural disaster, or forced disposition due to economic necessity—causes trauma and loss of self; voluntary disposition, in contrast, does not produce this effect.7 Csikszentmihalyi and Rochberg-Halton (1981) also established the connection between commonplace assets and the development of the self. As they explain, objects affect what a person can do, and since what a person does broadly represents who he or she is, objects have a determining effect on self-development. Thus, for instance, a person’s professional trade tools help define who that person is as an individual (Csikszentmihalyi and Rochberg-Halton 1981, 53, 92).8

Given the psychological significance of ownership and possession, let us take a closer look at people’s perceptions of these two basic concepts.

Physical and Nonphysical Possession

Within the legal arena, “possession” is typically perceived as tangible, and individuals often receive greater protection against interference with their physical possession than against interference lacking any physical attribute. Take, for instance, the compensation rules that apply to the expropriation of land by the state for public use. Some American states require compensation surpassing market value for physical expropriation of homes. Thus, for example, condemnors in the state of Indiana are required to pay 150 percent of fair market value for occupied residences (Ind. Code § 32-24-4.5-8(2)(A); for further discussion of compensation for takings of property, see chapter 3). Psychological studies, however, indicate that people’s notion of “possession” is not always physical, but may extend to intangible entitlements and expectations. If, indeed, the impact of nonphysical injuries is not necessarily qualitatively different from that of physical ones, the law should consider updating its understanding of possession.

Legal Possession and Psychological Possession

One example of the centrality of tangibility in legal possession extends back to the famous case of Pierson v. Post,9 which involved a dispute between two hunters over a fox. Post was pursuing the wild animal across a deserted beach, when Pierson rode up and physically caught it. Post demanded that Pierson hand over the fox, based on the doctrine of first possession. According to this doctrine, the first person to gain possession of a previously unowned object, with the intent of becoming its owner, acquires ownership rights (Epstein 1998, 63). In principle, wild animals are considered to be ownerless until they are captured. Thus, Post claimed that his hot pursuit of the animal counts as “possession” and hence that he was already the fox’s owner at the time that Pierson seized it. The majority ruled in favor of Pierson, holding that possession requires strong tangible manifestations: if not actual bodily capture, then at least mortal wounding or securing in a trap. Through the present, the definition of possession includes a significant physical element: taking in hand, occupying, or some other sort of physical control (Epstein 1998, 63).

Some evidence exists that both children and adults tend to infer that the first person known to physically possess an object is its owner (O. Friedman 2008; O. Friedman and Neary 2008; O. Friedman et al. 2011), even in the presence of other possible cues for ownership, such as sex stereotypes (toys associated with either girls or boys), or duration of possession (which was longer for the subsequent possessor) (O. Friedman 2008; for additional studies on the development of ownership notions in children, see Blake and Harris 2011; Hood et al. 2016; Rossano, Rakoczy, and Tomasello 2011; Shaw, Li, and Olson 2012; for a useful summary, see Nancekivell, Van de Vondervoort, and Friedman 2013).

Psychological findings, however, challenge this overly rigid perception of possession. Take, for instance, studies of the aforementioned endowment effect. Although many of these experiments involved physical possession of tangible goods, such as coffee mugs and pens, some have explored the possibility that an EE can also exist in relation to intangible goods, or without physical possession of the relevant good. Thus, for example, an EE was found with respect to intangible entitlements like hunting rights (Hammack and Brown 1974), working hours (Ortona and Scacciati 1992), promotional coupons for restaurants (S. Sen and Johnson 1997), academic chores (Galin et al. 2006), arguments in a debate (De Dreu and van Knippenberg 2005), and default rules (Korobkin 1998; Sunstein 2002). Furthermore, experimental studies have shown that the mere expectation of receiving a tangible or intangible resource can create an EE. Feldman, Schurr, and Teichman (2013) have demonstrated that the future gains a party expects to realize from a contract produce an EE; hence, the disutility associated with not realizing those gains is similar to that of losing goods already in possession. For example, promisors who viewed unrealized expectations as a loss were more likely to interpret their contractual obligation in a self-serving manner. In a similar fashion, Marzilli-Ericson and Fuster (2011) found that expectations determined by the probability of receiving a mug created an EE: subjects who had a high (80 percent) chance of obtaining a mug valued it 20 to 30 percent higher than subjects who had only a low (10 percent) chance of obtaining the asset (for additional studies of expectations as reference points for evaluating gains and losses, see Camerer et al. 1997; Abeler et al. 2011).

Experiments with online auctions are also informative. Various studies (Ariely and Simonson 2003; Heyman, Orhun, and Ariely 2004) have shown that participants who were the highest bidders for a certain period of time developed an EE with respect to the auctioned item, even before they became its actual owners or physical possessors. They perceived the possibility of being outbid by others as a loss, which in turn increased their valuation of the item. Moreover, the “opponent effect” (i.e., a competitive impulse to win the auction) was ruled out in explaining this higher valuation.

Another relevant line of research concerns consumers’ behavior in online and offline purchases. Byun and Sternquist (2008, 2012) examined the effect of product-marketing techniques that induce perceptions of limited availability (by using phrases such as “limited time only,” “while stocks last,” and so forth). They found that consumers perceive not buying as the loss of an opportunity that they currently have. Consumers react to this feeling of loss by hoarding numerous items in their shopping cart, which eventually leads to excessive purchases. In other words, aversion to losing an intangible opportunity increases instances of physical possession and ultimately ownership.

In a similar vein, Tom, Lopez, and Demir (2006) observed an EE in both retail purchases (where the product usually is delivered on the spot) and direct marketing purchases (where the product is bought online or through a catalog). In the latter case, an EE was found even though the product was purchased remotely and physical possession was obtained only after a period of time. Brasel and Gips (2014) investigated the significance of the type of interface used in online purchasing. They discovered that touch screen devices like tablets lead to higher product valuations in comparison to indirect-touch devices, such as a computer mouse or a touch pad. It appears that enhancing the perception of “virtual touch” affects consumers’ sense of endowment and their valuation of an asset that they have not actually touched.10

Finally, Peck and Shu (2009) and Peck, Barger, and Webb (2013) discovered that asking nonowners to imagine touching an object can produce an EE. It appears that even imagination can sometimes substitute for actual ownership or physical possession.11

These diverse experimental data support the claim that people’s notion of “possession” is not confined to physical occupation, touch, or control of tangible assets. Rather, feelings of possession may relate to intangible assets, entitlements, and expectations;12 in addition, they may exist in the absence of any physical proximity to a tangible asset.13 These findings bear potential legal implications, as explained in the following.

Expanding the Legal Concept of Possession

In his seminal article “The New Property,” Charles Reich (1964) argued that government largesse in the form of welfare benefits, licenses, franchises, subsidies, and the like should be regarded as “property.” The main motivation for including intangible, government-created entitlements in the institution of property was to improve their protection against injurious state interference. Reich claimed that increased protection is necessary in light of the fact that an ever-increasing portion of individuals’ wealth consists of government largesse—such as Social Security benefits, a license to practice medicine, or a taxi medallion—rather than traditional types of property. In a somewhat analogous fashion, perhaps we should consider “The New Possession.” If perceptions, preferences, and reactions conventionally associated with physical possession are also manifested without physical control and with respect to intangible entitlements and expectations, then we may need to broaden our definition of legal possession. In the following, we demonstrate the fruitfulness of the psychological insights with two potential applications: compensation for takings of property and the doctrine of first possession.

First Application: Takings Compensation

Recognizing a broader, more flexible notion of possession may have implications for various legal debates—including, for example, the takings issue. Law in the United States (and elsewhere) sharply distinguishes between physical and nonphysical injuries to land. Landowners are afforded much broader protection against physical injuries (such as the taking of physical possession of their land) than against nonphysical injuries (such as restricting development rights on land that remains with its owners). Whereas in the former case even a small injury requires full compensation, in the latter case enormous reductions in the land’s value are legitimized without compensation (Lewinsohn-Zamir 1996, 114–19).

Some scholars have justified these rules by relying on the EE phenomenon. Ellickson, for example, rationalized that a physical injury to land would ordinarily be viewed as a loss. In contrast, a nonphysical injury is likely to be perceived as an unattained gain. Since people experience more disutility from a loss than from an unrealized profit of the same magnitude, the former type of injury is worthier of legal protection than the latter (Ellickson 1989, 35–38). This argument is based on the crucial assumption that, usually, nonphysical injuries are perceived as foregone gains. However, the preceding experimental evidence regarding intangible possession indicates that this may not necessarily be the case. Why wouldn’t landowners experience restrictions on permissible construction on their land as a loss of formerly “held” d...