Endowment Effect (Cognitive Bias #7)

July 13, 2006

This is the tendency for people to value something more as soon as they own it. For example, if you own a certain t-shirt, you will place a higher price on it than a tshirt that you don’t own. Most economists believe that you will be willing to sell something for the same price you paid to receive it, but if this bias is real (and there is some debate), then the simple act of owning an object will inflate the price. Perhaps because the cost of choosing is valuable in itself. Perhaps because of the effort involved in finding it in the first place, and having to find it again if you wanted it again. Perhaps because of a sense of scarcity (what if you can’t repurchase the item you just sold for the same price). Whatever the cause, it seems like a bias that encourages inflation… and therefore rewards buying early, and holding on to what you have.

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