06/11/2013 12:09 pm ET Updated Aug 11, 2013

Owners and Intruders

If two butterflies contest a sunny spot, they spiral around for a few minutes and then typically the intruder departs. But if both butterflies are already resident in the spot, the contest takes quite some time, with an equal chance of either winning. Experiments with baboons show the same pattern -- the owner is likely to win, even if it is a slightly weaker animal. There is a strong inclination to hang on to what one already has, and a lower inclination to take new ground. And I know this from my own experience. At Cape Point in South Africa, a powerful baboon tried to wrest my mother's handbag. She hung on for grim death, and the baboon soon gave up and romped away. If it had just been a matter of strength, the baboon would have won hands down.

Similar experiments on humans have shown what psychologists dub the endowment effect. Say someone is given two tickets to a top sporting event. A few days later, she is offered $400 for the tickets. In experiments, most subjects refuse the money. But when the experiment is reversed, and the subject is first given $400, and then offered the same tickets for the money, most still refuse the trade. This appears perverse, until you realize that idea of ownership explains the paradox. What we own, we want to keep.

The science of game theory has validated the ownership advantage. In games of owners and intruders, there is a dominant strategy that will win most games in the long run. If you are an owner, you should escalate to deter the intruder. If you are the intruder, you should not escalate -- if the owner escalates, you should retreat. When players swap roles, the same phenomenon occurs -- the owner tends to win. Biologist John Maynard Smith called this pattern "bourgeois" competition, since respect for property rights ensures that the conflict is not escalated. Bourgeois competition is implicit cooperation, with consent given to incumbents. You can see the same phenomenon in traffic, when it has to file into one lane. And also in the extreme hostility which perfectly gentle people show to queue jumpers, regardless of size or fitness.

So what? Well, it's useful to know this in business. There is an inbuilt, apparently hardwired, genetic bias towards respect for incumbents, which places challengers at a disadvantage. This bias may be related to risk aversion -- when hunter-gatherers had enough food they would not scramble for more, because it was too risky; but they would scramble even against wild beasts to defend what they had already, because this was vital for their security. Now, when disputed territory is rarely a matter of life of death, there is no objective basis for our actions, but they still reflect Stone Age conditions.

Consider these corollaries:

  • The so-called 'first mover' advantage -- the well-documented tendency for the first firm into a market to enjoy market share higher than it deserves on purely objective grounds -- may be rooted as much in the psychology of the challengers and the incumbent as it is in the effect on customers. The conventional wisdom is that customers associated a niche with the first firm into it. Clearly, the challenger can't do anything about this - history can't be undone. If, however, much of the advantages rests purely in the mind game between challenger and incumbent, the advantage may be more precarious than it appears. If the challenger can somehow psych itself up to an absolute determination to take the territory, and make it clear to the incumbent that is doesn't respect 'bourgeois' rights, then the odds may shift in its favor. There is, sadly, a parallel in territorial disputes between tribes or nations -- these are most intractable where both sides believe that the land belonged to them from time immemorial.
  • Under current conditions, however, without such a 'psyching-up' exercise, if the incumbent and challenger are otherwise equally matched, the incumbent enjoys a clear advantage, if only in terms of motivation. But motivation is important. If the incumbent comes under attack, even from a superior product or service, it should escalate the conflict, for example by doubling the advertising budget, knowing that the odds are that the challenger will blink first and back down.
  • Perceived ownership is what counts. It is not relevant which butterfly is the real owner of the sunny glade. The butterfly that considers it most belong there will tend to win. If you want your firm to win in a particular market, therefore, you have to drill into your people -- and most of all into yourself -- that you belong there, that the ground is rightfully yours. Bending the facts, so long as you can do so convincingly, can be very useful. Propaganda can decide the contest. People will not easily surrender space they believe is theirs. On the other hand, they won't put their best foot forward if they think they are trespassing.
  • Willpower is important in business, and in life, but the strongest form of willpower is when you are convinced that territory is rightfully yours. Whatever we tell ourselves becomes real. The battle for rewards in life goes disproportionately to people who are super-confident in the few most lucrative sweet spots. Confidence overawes challengers. Cultivating confidence that is based on a sense of right -- of entitlement -- is a powerful weapon. How else can we explain the existence of dynasties such as the Kennedys, the Bushes, and the Clintons in the midst of an apparent democracy with millions of plausible candidates for high office? It is statistically improbable in the extreme. You can see the same with the products of top schools and universities, almost regardless of merit.

A sense of entitlement is not attractive, but it works. It is not to be flaunted, but a quiet sense of what is rightfully yours may tilt your life chances in a decisive way.