Have you ever wanted to buy something, but the person selling wanted more than you thought it was worth?

That person might have been suffering from the Endowment Effect.

The Endowment Effect is a cognitive bias where people who own a good to value it more than people who do not.

It was popularised by the work of Daniel Kahneman, Jack Knetch and Richard Thaler, especially their 1990 research.

In one of their most famous examples, people were randomly given coffee mugs, and then asked how much they would sell it for. Other people without mugs were asked how much they would pay for the same mugs.

In the experiment, people with a mug were usually only willing to sell their mug for about twice as much as what the other people were willing to pay.

Simply by being in possession of something, people somehow felt that it was more valuable, or they were less willing to let it go.

Other examples from the same authors are someone who previously bought wine which has risen in price not being willing to make a profit by selling it, nor buying more of it.

This is strongly related to the concept of Loss Aversion, also popularised by Kahneman, which shows that negative experiences are felt around twice as strongly as positive experiences.

It is also similar to the Ikea Effect, the bias where if someone has been involved in the development or building of something, they value it more than other people do.

Impact on Innovation and Creativity

The Endowment Effect may partially explain why many decision makers in companies prefer to keep the status quo rather than accept new ideas which may change things.

These decision makers have often worked their way up in a company and value their position, status and the processes and ways of working which got them there.

Therefore, innovations which threaten to change things may be perceived as less valuable than what they currently have.

One way to address this is to involve decision makers in part of the innovation process early.

If they feel at least partial involvement or ownership, they might trigger some Endowment Effect towards the potential success of the innovation, making them more likely to support and promote it.

Did you know that scientific evidence shows your creativity decreases over time

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Creativity & Innovation expert: I help individuals and companies build their creativity and innovation capabilities, so you can develop the next breakthrough idea which customers love. Chief Editor of Ideatovalue.com and Founder / CEO of Improvides Innovation Consulting. Coach / Speaker / Author / TEDx Speaker / Voted as one of the most influential innovation bloggers.

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