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Endowment Heuristic
Endowment Heuristic
Endowment Heuristic
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Overview

No, it's not just you — we all tend to overestimate the value of our possessions, and there's a name for it. 

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Actionable Takeaways
  • Be mindful of the endowment heuristic in sales conversations. 

When purchasing something, be aware ...

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Endowment Heuristic is featured in these playbooks:
Limitations

There have been critics of the Endowment Heuristic, with some claiming it does not exist or at least is not as apparent in real life as in fixed experiments. For example, some argue that the results from the mug experiment (see the ‘In Practice’ section) was more due to artificial scarcity. 

In Practice

Mugs.

This 1991 paper by Daniel Kahneman, Jack Knetcsch and Richard Thaler describes the classic example of the endowment heuristic involving mugs. In it, participants were given a mug and then given the chance to trade it. They found that the value attributed to owned mugs was twice as high as they were actually willing to pay for such a mug that they did not own.

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This model will help you to:

The endowment heuristic is part of behavioural economics, stemming from the fast and slow thinking mental model and relating closely to loss aversion. 

Use the following examples of connected and complementary models to weave availability heuristic into your broader latticework of mental models. Alternatively, discover your own connections by exploring the category list above. 

Connected models: 

  • Fast and slow thinking: providing broader context to the endowment effect. 
  • Loss aversion and opportunity cost: a closely linked heuristic and bias. 
  • Lock in effect: and challenge of customer loyalty. 

Complementary models: 

  • Design thinking: consider strategies to co-design and increase ownership of initiatives. 
  • Lean startup: iterating with minimum viable products, allowing audience groups to access and own quickly and cheaply. 
Origins & Resources

Aristotle noted the tendency towards the Endowment Effect in Ancient Greece, when he explained: “For most things are differently valued by those who have them and by those who wish to get them: what belongs to us, and what we give away, always seems very precious to us.”

However, the term itself was first coined by the behavioural economist Richard Thaler in his 1980 paper entitled Toward a Positive Theory of Consumer Choice.’ 

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