The Endowment Effect

The endowment effect states that people ascribe more value to things merely because they own them.

An example and experiment conducted by Ziv Carmon and Dan Ariely  found that participants’ hypothetical selling price for NCAA final four tournament tickets were ten times higher than their hypothetical buying price.

From Ariely’s book, “Predictably Irrational“:

There are three fundamental quirks of human nature. We fall in love with what we already have. We focus on what we might lose, rather than what we might gain. We assume that other people will see the transaction from the same perspective as we do.

The value of what you’ve spent so far on a service, product, or relationship — in effort or money — is probably far less than you think. Be willing to walk away.

Once you’ve bought something, never rely on your internal judgment to assess its value, because you’re too close to it now.

Originally, the endowment effect was thought to be explained by loss aversion but further studies indicated that it was mainly driven by a sense of ownership. Businesses use this to a large degree with changing rooms (customers are more likely to purchase clothing once they have tried it on [one step closer to ownership], free samples/trials and coupons.

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