Some economists would argue that this is called, the Endowment Effect.. and it’s a type of short cut the mind makes to make decisions.

This Effect is best learned in it’s story of it’s discovery, which involves coffee mugs, and college students!

Psychologists Amos Tversky, and Daniel Kahneman, and Economist Richard Thaler asked college students to give a price they would pay for a university coffee mug. The mean of the prices were then calculated, and half the students got the coffee mug, and the other half of the students got the mean value of cash. The students were then given some time to exchange. What they found was that students who valued the coffee mug for only a couple dollars were, now unwilling to part with it for twice the money. The value jumped when they were endowed with their very own cup.

This same idea messes with us in other ways! Think of when people take their HOAs, or environmental concerns with inflated affects. This is another example often laborers overvalue value the job they have instead of seeing their job as one of many in the market.”

“What about buying and selling companies? The endowment effect could be most prevalent in the private business transaction market. Business owners often view their business as a baby, and they have an inflated value as to what it is worth. According to the Exit Planning Institute, only 20 to 30% of businesses that go to market actually sell.” And only 12% of business owners are highly satisfied with the sale of their business.”

If you are struggling to sell your personal assets, such as your home, your car, or a stock you purchased 10 years ago and you are a business owner who plans on retiring from the proceeds of your business… think again. The plan will fail if we don’t address the endowment effect first.

And only 12% of business owners are highly satisfied with the sale of their business.”

If you are struggling to sell your personal assets, such as your home, your car, or a stock you purchased 10 years ago and you are a business owner who plans on retiring from the proceeds of your business… think again. The plan will fail if we don’t address the endowment effect first.

Kahneman, Daniel, Jack L. Knetsch, and Richard H. Thaler. “Experimental Tests of the Endowment Effect and the Coase Theorem.” Journal of Political Economy 98, no. 6 (1990): 1325–48.