Endowment Effect

Overview & Description: The endowment effect refers to a cognitive bias where individuals ascribe higher value to things simply because they own them. For instance, people might demand a higher price for goods they own than they’d be willing to pay to purchase those same goods.

Implications: This effect is particularly pertinent in economics, behavioral finance, and marketing, as understanding how people value possessions can have implications for buying and selling behaviors.

References:

• Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. The Journal of Economic Perspectives, 5(1), 193-206.

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