The Endowment Effect in Information Security

There are many reasons why business managers seem to ignore the risks brought forth by information security professionals. I outlined six of them in an earlier post. In this note, I’d like to add another possible explanation: the endowment effect, which affects how humans value their possessions.

Richard Thaler coined the term endowment effect to describe the tendency of individuals to value the item in their possession more highly than the same item possessed by someone else. In the words of Dan Ariely, “once we own something, its value increases in our eyes.” Dan also points out that ownership isn’t the only way to endow something with higher value:

"You can also create value by investing time and effort into something (hence why we cherish those scraggly scarves we knit ourselves) or by knowing that someone else has (gifts fall under this category)."

This propensity seems irrational, yet it was observed in numerous experiments.

Information security professionals experience a sense of ownership for the data they safeguard. Therefore, the endowment effect might bias us towards overestimating the value of this data. Business managers are somewhat removed from the data by layers of applications and business processes and aren’t affected by the bias to the same degree.

In other words, business managers might value the data less than how infosec professionals value it. This would contribute to the disagreement regarding the level of risk associated with security of the data.

If information security professionals are, indeed, irrationally influenced by the endowment effect, what can we do about it? Alternatively, when persuading business managers to agree with our perspective, how might we influence them to experience the endowment effect to the same extent?

— Lenny Zeltser

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  • posted 31 May, 2012

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