Think Better · 45 sec
Endowment effect
A compact thinking tool for spotting patterns and avoiding mistakes.
The useful idea
- The useful idea
In psychology and behavioral economics, the endowment effect, also known as divestiture aversion, is the finding that people are more likely to retain an object they own than acquire that same object when
- How it works
The endowment theory can be defined as "an application of prospect theory positing that loss aversion associated with ownership explains observed exchange asymmetries." This is typically illustrated in
- Why it matters
In a valuation paradigm, people's maximum willingness to pay (WTP) to acquire an object is typically lower than the least amount they are willing to accept (WTA) to give up that same object when they own
Why this matters
Use Endowment effect as a quick check before trusting your first conclusion.
Try this
Use Endowment effect as a quick check before trusting your first conclusion.
Test your recall
Which idea belongs to the explanation of Endowment effect?
- The useful idea — correct
- How it works
- Why it matters
In psychology and behavioral economics, the endowment effect, also known as divestiture aversion, is the finding that people are more likely to retain an object they own than acquire that same object when