“The Endowment Effect”

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28th May 2024

Arjun was known for his love of gadgets, but one old smartphone held his unwavering affection, despite its outdated technology.

One day, his colleague Priya, intrigued by Arjun’s attachment to the old phone, asked, “Why keep this obsolete model when you always seek the latest technology?”

Arjun, with a smile, replied, “This phone has been a faithful companion. It’s more than just a gadget; it’s a part of my journey.”

Priya, intrigued, pointed out, “Isn’t that the ‘Endowment Effect’? Valuing something more because it’s yours, not because it’s inherently better?”

Arjun paused, realizing the truth in her words. This phone, though old, was overvalued in his eyes due to his personal connection with it.

As days passed, Arjun reflected on Priya’s insight. He recognized this bias in other aspects of his life – not just gadgets, but in his work and opinions too.

This realization helped him to start evaluating things more objectively, understanding their true worth rather than being swayed by personal attachment.

Arjun’s story, much like the fables of old, teaches us a valuable lesson about the ‘Endowment Effect’.

It illustrates how our personal attachments can cloud our judgment, leading us to overvalue what we own.

In another experiment, a set of people were each given a coffee mug and then given the choice to sell or swap it for an equally-priced alternative which, in this case, was a pen. Fascinatingly, they found that people wanted to be paid twice the money for their coffee mug as they’d themselves be willing to pay for the pen.

Similarly, in an election, every candidate thinks he is winning, every investor thinks, he is making a winning bet & we all think we are on the right path.

By recognizing this bias, we can make more balanced and thoughtful decisions, both in our personal lives and professional careers.

Don’t overvalue the things you own & stay blessed forever.