Endowment effect
The endowment effect is the tendency to value something more highly simply because one owns it.
The moment something becomes yours, it seems to be worth more. The endowment effect is that strange and reliable jump in value.
The endowment effect is the tendency for people to value something more highly simply because they own it. The price someone demands to give up a possession is typically far higher than the price they would have paid to acquire it, though nothing about the object has changed.
The mug experiments
The effect was demonstrated cleanly in experiments where people given a mug demanded roughly twice as much to sell it as others were willing to pay to buy an identical one. Ownership alone, established moments earlier and at random, opened a large gap between selling and buying prices. The object was the same; only who held it differed, and that was enough to change its perceived value.
Loss aversion in disguise
The endowment effect is largely loss aversion applied to possession. Once you own something, giving it up registers as a loss, and losses loom larger than equivalent gains. So parting with the mug feels worse than acquiring it felt good, and you demand more to compensate for the loss than you would have paid for the gain. The reference point has shifted to include the object, and removing it now hurts.
Consequences in markets and life
The effect has wide reach. It helps explain why markets can be stickier than theory predicts, since owners overvalue what they hold and trade less readily than rational agents would. It underlies the power of free trials and money-back guarantees, which work partly by giving people temporary ownership that they then dislike surrendering. It also explains why people cling to inherited investments, cluttered possessions, and long-held positions that they would never choose to acquire today.
The endowment effect is a reminder that value is not a fixed property of things but is coloured by our relationship to them. Mere ownership, even brief and accidental, inflates worth, which is why the question of what you would pay to acquire something is often a truer guide to its value than what you would demand to give it up.