Think Design: The Endowment Effect

Close your eyes, and… No, wait! Don’t close your eyes, or you won’t be able to read this post.

Okay, keep your eyes open, definitely keep your eyes open. Now imagine your home. Imagine walking through it, from room to room. See your belongings exactly as you have them. Your furniture, artwork, electronics, clothes, everything. Now think of something you own that is valuable to you. Got something in mind? Great. How much would you sell it for? If it’s something really valuable to you, maybe you wouldn’t sell it for any price. Maybe you feel it has sentimental value. Part of what creates this sentimental value is the Endowment Effect.

The endowment effect says that we value things more when we own them. This is why home sellers often think that realtors and buyers are undervaluing their house. It’s also why we sometimes have a hard time lending books, movies, or games to friends. Because once we own something, it’s no longer a house or a game, it’s our house or my game.

I’m not sure if I want you borrowing my car – it’s a classic.

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