The Endowment Effect

For subtitled video of this podcast, click here.

We overvalue the things we own. This is fine when it’s a family keepsake or memento – but how does this influence decisions we make about our homes, investments, and more?

RELATED MATERIALS

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".

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.

REFERENCES

Anagol, S., Balasubramaniam, V., & Ramadorai, T. (2016). Endowment Effects in the Field: Evidence from India’s IPO Lotteries. CEPR Discussion Paper No. DP11328. Available at SSRN.

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy, 98(6), 1325-1348.

CREDITS

Irrational Attachment was created and developed by Mahzarin Banaji and Olivia Kang with funding from PwC and Harvard University.

Narration by Olivia Kang, featuring Professor Santosh Anagol (The Wharton School at the University of Pennsylvania)

Sound Editing & Mixing by Evan Younger

Music by Miracles of Modern Science

Artwork by Olivia Kang

Research Assistant: Timothy Carroll