Glossary
Endowment Effect
A tendency, observed in some settings, for people to value an item more highly when they own it than when they do not.
Definition
The endowment effect refers to differences between willingness to accept compensation for giving up an owned item and willingness to pay to acquire it. Its size and interpretation depend on context, experience, expectations, transaction costs, and experimental design, so it should not be treated as a universal rule.
Origin
The term became prominent in behavioral economics through research on ownership, loss aversion, and valuation during the late twentieth century.
Usage in luxury
Ownership history, personal use, effort, and memory may contribute to a seller's valuation of a collectible differing from its market price. The effect does not establish an objective appraisal.
Examples
- - A collector asking more to sell a familiar object than they would have paid to acquire it
- - An inherited object feeling more valuable than comparable market examples
Related terms
Related reading
Sources and further reading
- Experimental Tests of the Endowment Effect and the Coase Theorem - Journal of Political Economy (1990)