What problem it addresses
It explains why we ask more to sell something than we would pay to buy it, and why free trials work.
An example
In a class, mugs were handed out at random to half the students. The other half could buy them.
It was the same mug, handed out at random a few minutes earlier. Owning it more than doubled its value.
Why it happens
What we have becomes our reference point.
Giving it up feels like a loss,
and losses weigh more than gains.
Applications in design
Use it like this
Let people try before buying: what gets used feels like one’s own.
Avoid
Free trials that turn into paid plans without clear notice.
Don’t fall for it
Before turning down an offer for something of yours, ask yourself how much you would pay to buy it.
$2.25 → $5.25
What the research says
Median price to buy and to sell the same mug (Kahneman, Knetsch and Thaler, 1990).
Solid evidence. Thaler (1980) named it. It is usually explained by loss aversion.
Connections
Used in
Authors and works
- 1980
Richard Thaler
Gave the effect its name.
- 1990
Daniel Kahneman, Jack Knetsch and Richard Thaler
Measured it in market experiments with mugs and pens.
Sources
Original sources
- 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. View source: Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990)
- Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1(1), 39–60. View source: Thaler, R. (1980)
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