Is this coffee mug really worth the price?

In my last post, I wrote about the “Loss aversion” syndrome.

** I highly recommend reading it before moving on. Click here. **

TL;DR

Loss aversion lets you prefer avoiding losses in order to acquire equivalent gains.

This psychological syndrome combined with “falling in love” creates the “Endowment Effect.”

In short, people are more likely to retain an object they own rather than acquire that same object when they do not own it.

The scientific proofs

The coffee mug experiment

Nobel prize professors Daniel Kahneman and Richard Thaler conducted a research in order to test how it affects our decision making.

They randomly gave coffee mugs to buyers and sellers and then asked the sellers how much they are willing to sell them for and asked the buyers how much they are willing to buy them for.

The results showed that the sellers who got the mugs valued the price way more than the buyers ($7.12 over $2.87)

The fear of losing the mug (Loss Aversion) becomes the reason for overpricing (Endowment Effect)

The basketball tickets experiment

Professors Ziv Carmon & Dan Ariely also put the “Endowment Effect” to the test.

Duke University conducted lottery tickets before important games because of limited space in the basketball court.

After one of the lotteries, the professors called the “winners” and asked what price they were willing to sell the tickets.

The same goes for the “losers” on how much they are willing to pay for the tickets

The results revealed that the average selling price was 14 times higher than the average buying price ($2,400 over $175).

Once the fans won the tickets, their subjective value jumped to the roof and it became more difficult to give up on.

What we understand is when we become owners of something, Loss Aversion kicks in and we start thinking of the situation in win-lose terms (losing has a deeper impact on our decision making).

Use it wisely in your service or product.

Analyze the way people use your service or product and always test ways to deploy this effect in the process.

Interested in how the endowment effect affects negotiations & business?

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Thank you for reading.

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Image credit: https://kenthendricks.com/