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.

Where this bias occurs

Imagine you just upgraded your laptop and you want to sell your old one. Let’s say you bought it several years ago, brand new, for $1,000. It’s still in great condition and runs well, so you list it online for $900, thinking you’re giving people a great deal—after all, it would set someone back at least $1,000 to buy the newest model of the laptop today. Feeling confident, you sit back and wait for the responses to roll in.

To your dismay, you only receive a few messages, and everyone is lowballing you! One person offers $600 and another $400. The feedback is clear: everyone says that your laptop is too expensive. Someone even boasts that they can get it for less elsewhere. Your laptop has depreciated much more than you thought, and thanks to the endowment effect, you set the price higher than the market is willing to pay. Simply because the laptop is yours, you value it more than all those potential buyers who only see it as another used electronic device.

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Sources

Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1(1), 39-60.
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
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
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
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
Hendricks, K. (2018, December 11). The endowment effect: Why ownership makes you overvalue your things. Kent Hendricks. https://kenthendricks.com/endowment-effect/
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
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.
Strahilevitz, M. A., & Loewenstein, G. (1998). The Effect of Ownership History on the Valuation of Objects. Journal of Consumer Research, 25(3), 276-289. https://doi.org/10.1086/209539
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental Tests of the Endowment Effect and the Coase Theorem. Journal of Political Economy, 98(6). 1325-1348. https://doi.org/10.1086/261737
Clarity Recruitment. (2016, December 13). The endowment effect. https://findingclarity.ca/blog/the-endowment-effect/
Savov, V. (2016, October 2). BlackBerry’s success led to its failure. CNBC. https://www.cnbc.com/2016/10/02/blackberrys-success-led-to-its-failure.html
Fallon, N. (2024, May 6). How AI can optimize your pricing strategy. U.S. Chamber of Commerce. https://www.uschamber.com/co/run/finance/ai-price-optimization
Shu, S. B., & Peck, J. (2011). Psychological ownership and affective reaction: Emotional attachment process variables and the endowment effect. Journal of Consumer Psychology, 21(4), 439-452. https://doi.org/10.1016/j.jcps.2011.01.002

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.

A smiling man stands in an office, wearing a dark blazer and black shirt, with plants and glass-walled rooms in the background.

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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