'Endowment effect'
The endowment is something like possession or near ownership.
A teacher in a secondary school classroom distributed coffee mugs to only half of the strength of the classroom and told the students either they can take home the coffee mug or they can sell at the price they feel okay.
The teacher also asked the other half of the students how much they are willing to pay price for the coffee mug.
One would expect that roughly 50% of students will be willing to trade- either sell or buy a mug. But in reality, the percentage of trade was much much lower than expected.
Because the owner of coffee mug was not ready to sell it below X price while the buyer was not ready to pay more than 50% of X price.
This is nothing but endowment effect.
Here seller become emotionally attached with his possession and thus overestimate it's value.
We consider things to be more valuable the moment we own it.
In short, if we are selling something, we charge more than we are willing to pay if we have to buy it.
The endowment is something like possession or near ownership.
A teacher in a secondary school classroom distributed coffee mugs to only half of the strength of the classroom and told the students either they can take home the coffee mug or they can sell at the price they feel okay.
The teacher also asked the other half of the students how much they are willing to pay price for the coffee mug.
One would expect that roughly 50% of students will be willing to trade- either sell or buy a mug. But in reality, the percentage of trade was much much lower than expected.
Because the owner of coffee mug was not ready to sell it below X price while the buyer was not ready to pay more than 50% of X price.
This is nothing but endowment effect.
Here seller become emotionally attached with his possession and thus overestimate it's value.
We consider things to be more valuable the moment we own it.
In short, if we are selling something, we charge more than we are willing to pay if we have to buy it.
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