The Endowment Effect
The endowment effect is when people place a higher value on something they own compared to something they do not own. This occurs even when the two items are very close in value!
An example: if you own a coffee mug that you paid $7.12, you may place a higher value on that mug than someone else who does not own it. If someone offered to buy the mug from you for $2.87, you may not sell it because you feel that it is worth more.
Side note: I have seen coffee mugs for $40 or more!! WTF
The endowment effect is more than your conscious mind, it’s a combination of psychological and emotional behaviors. When we own something, we become attached to it and it becomes a part of our identity. Have you ever sold or given away a possession and felt a sense of loss or regret?
Then you have experienced the endowment effect on the conscience level.
This is not only for coffee mugs, it can be around economics and value in the marketplace. For example, the endowment effect may cause people to want more for their home than what it’s worth, or want higher prices for the goods and services that they provide.
Understanding the endowment effect consciously can be useful for individuals who want to make more ration decisions about possessions (small and large) and marketplace value (pricing and negotiating).
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Author
Mike Staunton
Financial Coach
Coaching people on how to handle their money better has lead to being more than just a coach. I have been counselling people how to set boundaries, how they treat money and empower them with the tools to have confidence and certainty moving forward!