This theory states that people tend to assign higher value to things they already possess than they would assign to things other people have or things they could exchange their possessions for on an open market.

One of the best-known studies of this was conducted at Cornell University. Researchers gave half of the subjects chocolate bars and the other half were given coffee mugs. Both items had equal market value and were given at random. The subjects were then allowed to trade their gift for the other of the two choices. Only 10% didn't want to keep the item they already had (statistically, 50% would want to trade). The study assumes everyone likes coffee mugs and chocolate bars equally.

The Endowment Effect has been used to hypothesize why someone would be reluctant to sell a losing stock, or hesitate to sell a concert ticket for more than the original price, or set an unrealistically-high price for something they're selling.

The Endowment Effect is sometimes called the Status Quo Bias.

Sources and further reading:
http://www.washingtonpost.com/wp-dyn/articles/A41329-2002Jan26.html
http://www.turtletrader.com/endowment-effect.html
http://www.travismorien.com/FAQ/psychology/endowmenteffect.htm

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