Endowment Effect

The Endowment Effect is a hypothesis stating that a person’s willingness to accept compensation for a good is greater than their willingness to pay for the good once their property right has been established. Once an object has been claimed, foregoing it or losing it feels like a loss, and because humans are loss-aversive, people are willing to pay more to keep an item already in their possession than they are willing to pay to obtain a similar item that is not already in their possession. The term “endowment effect” was first used by the economist Richard Thaler in reference to the under-weighting of opportunity costs, as well as the inertia introduced into consumer choice processes when goods included in their endowment became valued at more than goods that were not.


Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1, 39-60.