The Endowment Effect

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Want to learn more about Dr. Anagol’s research on the endowment effect? See The Economist’s "To have and to hold: The endowment effect among stockmarket investors".

We see evidence of endowment effects for lottery tickets, coffee mugs, even the letters of our own name. But new research conducted at Vanderbilt shows humans’ “greater tendency to overvalue things that are related to survival and reproduction”. In the study, items rated as more likely to “directly help its owner survive and thrive” produced the greatest endowment effects: for instance, a pill that allows a person to maintain a perfect weight or a luxury car resulted in a 67% greater endowment effect compared to the lowest-rated items (a video streaming membership and a mummy costume). The trend towards overvaluing items more strongly related to health and status “may reflect the potential evolutionary origins of the effect”. What’s more, this tendency, and the endowment effect broadly, isn’t limited to humans! Researchers found the same effects in chimps and orangutans. Read more at Phys.org.

This Washington Post article looks at how return policies take advantage of the endowment effect to influence shoppers’ decisions.

"Both the Boston Red Sox and the Chicago White Sox had rather mediocre seasons last year. The Red Sox have some exciting young hitters but a lack of decent pitchers. The White Sox have almost the exact opposite problem … So the argument was to put a Chicago White Sox’ message board: would they trade their great young pitcher Chris Sale for two excellent and even younger hitters from the Red Sox, Xander Bogaerts and Mookie Betts?" From John Auther’s 2015 Financial Times article: "Investors psyched by the endowment effect".

For a broader introduction to how we think, and where our blindspots are, check out Daniel Kahneman’s NYT Bestseller and Winner of the National Academy of Sciences Best Book Award (2012): Thinking, Fast and Slow.