Psychology › Thinking, memory & biases › Loss aversion
Endowment effect: valuing what we own more
1980; mug study 1990· Finding or experiment
Well replicatedStrong, repeated evidence.
People demand more to give up something they own than they would pay to get it in the first place.
See it on the Psychology map →What it says
Thaler named it in 1980. In the famous 1990 study by Kahneman, Jack Knetsch and Thaler, students handed a university coffee mug asked about $7 to sell it, while those without mugs offered only about $3 to buy one. Because mugs were handed out at random, taste could not explain the gap. Ownership seems to make giving an item up feel like a loss, which ties the effect to loss aversion.
Why it matters
It helps explain sticky markets: owners value their home, building or stock above what buyers will pay, list too high and trade less than standard economics predicts.
Think of it like
Like an owner who would never pay today's asking price for their own building, yet will not sell at it either.
The evidence
Well replicated in many lab studies. Charles Plott and Kathryn Zeiler (2005) showed careful procedures can shrink the gap, and John List (2003) found experienced traders show it far less.
Open questions
Whether ownership itself, loss aversion, uncertainty about value or experiment design drives it is still argued; it is weak for goods bought to resell.
Connections (2)
▸Endowment effect: valuing what we own more is largely explained by Loss aversionWell replicated
The connection
Kahneman, Knetsch and Thaler argued that giving up an owned item is coded as a loss, while acquiring one is a gain. Because losses weigh about twice as much, sellers should want roughly twice what buyers offer, close to the mug study's gap of a bit over two to one.
Who showed it and when
Thaler proposed the link in 1980; the 1990 mug experiments at Cornell and Simon Fraser University by Kahneman, Knetsch and Thaler tested it.
The evidence
The gap appears for ordinary goods and shrinks for goods held for trade, as loss aversion predicts.
Open questions
Rival explanations include uncertainty about value, attachment to one's things and experiment design; Plott and Zeiler's 2005 procedures shrank the gap.
▸Richard Thaler named Endowment effect: valuing what we own moreWell replicated
The connection
Thaler noticed oddities like a colleague who would not sell wine he had bought for about $5 a bottle even for $100, yet would not pay more than $35 for another. In his 1980 paper he named this 'the endowment effect' and linked it to loss aversion; he later co-ran the mug experiments.
Who showed it and when
University of Rochester in the 1970s, where Thaler observed economist Richard Rosett; published in 'Toward a Positive Theory of Consumer Choice', 1980.
The evidence
The 1980 paper coins the term, and Thaler recounts its origin in his memoir Misbehaving (2015).
Open questions
Gaps between willingness to pay and to accept had appeared in early-1970s studies of hunting rights; Thaler's contribution was the name and the explanation.