The Endowment Effect

In the book “Predictably Irrational: The Hidden Forces that Shape our Decisions”, Dan Ariely talks about a cognitive bias known as the Endowment Effect. Simply stated, the endowment effect is the fact the people in general place a higher value on the things they have over identical things they do not have.

Dan used the example of Duke University’s Blue Devils men’s basketball game tickets. Students wanting tickets are subjected to tests of endurance over a lengthy period of time to separate out the most committed from the pack. Once the students are whittled down to the committed few, a lottery is conducted to see which of the dedicated students will get tickets and which will lose out. With a ticket secured they asked how much the students would be willing to take for someone to buy the ticket from them. Then they asked people that lost the lottery how much they were willing to pay for a ticket. On average, buyers were willing to pay $170 to buy a ticket, while sellers on average demanded $2,400 to sell theirs.

Ownership pervades our lives and shapes how we see the world. Savvy marketers take advantage of the Endowment Effect by allowing prospective customers to incorporate the product or service into their daily lives, thereby creating the tendency that the customer will value it more. Car dealers invite you to take home a new car overnight, while software or subscription-based businesses may offer a free trial period. Once you have something home you view it as “yours” and are far less likely to return it.

How can you use the knowledge of the Endowment Effect in your marketing?

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