Why do we value items more if they belong to us?

The 

Endowment Effect

, explained.
Bias

What is the Endowment Effect?

The endowment effect describes how people tend to value items that they own more highly than they would if they did not belong to them. This means that sellers often try to charge more for an item than it would cost elsewhere.

An illustration showing a person admiring an orange circle labeled "Mine" and valued at $6, while a similar circle labeled "Not Mine" is valued at $2. The text "Endowment Effect" is at the top.

Where this bias occurs

Let’s say a few months ago, you bought a concert ticket for $100. You just found out that you won’t be able to make it to the concert after all, so you decide to resell your ticket. You price the ticket at $150, because just selling it at market value would feel like you were losing out. 

Sources

  1. Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1(1), 39-60. https://doi.org/10.1016/0167-2681(80)90051-7
  2. Kahneman, D., & Tversky, A. (1984). Choices, values, and frames. American Psychologist, 39(4), 341-350. https://doi.org/10.1037/0003-066x.39.4.341
  3. Weaver, R., & Frederick, S. (2012). A reference price theory of the endowment effect. Journal of Marketing Research, 49(5), 696-707. https://doi.org/10.1509/jmr.09.0103
  4. Morewedge, C. K., & Giblin, C. E. (2015). Explanations of the endowment effect: An integrative review. Trends in Cognitive Sciences, 19(6), 339-348. https://doi.org/10.1016/j.tics.2015.04.004
  5. Beggan, J. K. (1992). On the social nature of nonsocial perception: The Mere ownership effect. Journal of Personality and Social Psychology, 62(2), 229-237. https://doi.org/10.1037/0022-3514.62.2.229
  6. Hendricks, K. (2018, December 11). The endowment effect: Why ownership makes you overvalue your things. Kent Hendricks. https://kenthendricks.com/endowment-effect/
  7. Maddux, W., Yang, H., Falk, C., Adam, H., Adair, W. L., Endo, Y., Carmon, Z., & Heine, S. J. (2010). For whom is parting with possessions more painful? Cultural differences in the endowment effect. SSRN Electronic Journal, 21(12), 1910-1917. https://doi.org/10.2139/ssrn.1670617
  8. Lakshminaryanan, V., Keith Chen, M., & Santos, L. R. (2008). Endowment effect in capuchin monkeys. Philosophical Transactions of the Royal Society B: Biological Sciences, 363(1511), 3837-3844.

About the Authors

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Dan Pilat

Dan is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. Dan has a background in organizational decision making, with a BComm in Decision & Information Systems from McGill University. He has worked on enterprise-level behavioral architecture at TD Securities and BMO Capital Markets, where he advised management on the implementation of systems processing billions of dollars per week. Driven by an appetite for the latest in technology, Dan created a course on business intelligence and lectured at McGill University, and has applied behavioral science to topics such as augmented and virtual reality.

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Dr. Sekoul Krastev

Sekoul is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. A decision scientist with a PhD in Decision Neuroscience from McGill University, Sekoul's work has been featured in peer-reviewed journals and has been presented at conferences around the world. Sekoul previously advised management on innovation and engagement strategy at The Boston Consulting Group as well as on online media strategy at Google. He has a deep interest in the applications of behavioral science to new technology and has published on these topics in places such as the Huffington Post and Strategy & Business.

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