Endowment Effect
- “why is my stuff worth more to me”
- “why can't I sell my old car for what it's worth”
- “endowment effect explained”
- “free returns make me keep things”
:: COMPARE ::
Endowment effectvsLoss aversion
The short answer
The endowment effect is loss aversion pointed at ownership. Handing over the mug is coded as a loss; buying it is coded merely as a gain. Since losses weigh more, the two prices rarely meet — one bias is the general principle, the other its most demonstrable instance.
Side by side
| Aspect | Endowment effect | Loss aversion |
|---|---|---|
| Scope | Owned things | Everything |
| Shows as | A price gap | An asymmetry |
| Named | 1980 | 1979 |
| Relationship | An instance | The principle |
Which one you meant
Readers who land here meaning Endowment Effect rather than Loss aversion are usually searching for phrases like “why is my stuff worth more to me”, “why can't I sell my old car for what it's worth”, “endowment effect explained”.
Loss Aversion
- “why does losing hurt more than winning feels good”
- “why can't I sell a losing stock”
- “loss aversion explained”
- “protecting a streak I don't care about”
Which came first
Loss aversion. 1979 — Prospect theory gives the value function a kink at the reference point — steeper for losses than for gains. Published in Econometrica by Kahneman and Tversky.
- 1979Loss AversionProspect theory gives the value function a kink at the reference point — steeper for losses than for gains. Published in Econometrica by Kahneman and Tversky.
- 1980Endowment EffectRichard Thaler names the endowment effect in 'Toward a Positive Theory of Consumer Choice' (Journal of Economic Behavior and Organization 1, 39-60): 'Henceforth, I will refer to the underweighting of opportunity costs as the endowment effect.' Mental accounting and transaction utility come five years later, in his 'Mental Accounting and Consumer Choice'.
Read either one in full