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Endowment effect: Easy explanation. [Video]

Endowment effect: Easy explanation.

In this video, you will learn about a concept in behavioural economics, the endowment effect.

#endowmenteffect #behavioraleconomics #wallstreetmojo #decisionmaking #finance

Chapters:
00:00 – Introduction
00:28 – What is the endowment effect?
01:17 – How does the endowment effect work?
02:26 – Example
03:35 – How to overcome the endowment effect?
04:36 – Conclusion

What is the endowment effect?
The endowment effect is a concept in behavioural economics that states that when a person owns something, they tend to value it more than when they don’t own it.

The endowment bias is a cognitive bias that ultimately increases the probability of you retaining a thing compared to the likelihood of you acquiring it.

(Explained in detail in the video)

How does the endowment effect work?
Because of the endowment effect, sellers may ask for a higher price for items they have used and owned. Unfortunately, this may often exceed the true value of the item.

But, the endowment effect can cause by three things: loss aversion, status quo bias, or even the psychological law of inertia.

Researchers also use other theories to define the endowment effect, like reference price theory and motivated taste change theory.

Example
An actual experiment by Daniel Kahneman, Jack Knetsch, and Richard Thaler led them to propound this endowment effect theory.

(Explained in detail in the video)

How to overcome the endowment effect?
If you want to avoid this effect, you need to look at things from an objective perspective rather than a subjective perspective.

Another way to avoid this bias is through the application of motivation.

Motivation is a psychological factor influencing consumer decision-making, and several industries use motivation-based strategies to change people’s feelings about things.

(Explained in detail in the video)

This is all about the endowment effect. We regularly come up with such content on finance. So, subscribe to the channel, and give this video a like.

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