AP MicroeconomicsBehavioral Economics
Endowment Effect
The endowment effect is the tendency to value something more highly simply because you own it, so you demand more to sell it than you would pay to buy it.
Demonstrated in Kahneman, Knetsch, and Thaler's mug experiments, owners' willingness-to-accept exceeds non-owners' willingness-to-pay for the same good. It stems from loss aversion: giving up an owned item feels like a loss, which looms larger than the equivalent gain. The effect violates standard theory's assumption that valuation is independent of ownership and can reduce mutually beneficial trade.