Have you ever tried selling your old car, house, or business only to feel like buyers were offering ridiculously low prices?
Have you struggled to get rid of clothes or belongings you never use because they ‘still have value’?
If you said yes to either of these, you’ve fallen into a mental bias trap—the Endowment Effect—a powerful behavioral bias that makes us overvalue what we own.
I often hear from clients who feel frustrated that their old homes or vehicles are being underpriced in the market. They are desperate to find someone who truly sees the value in their property or belongings. And it’s always a challenge to bring them to neutral ground—to help them see the actual value of what they’re trying to sell.
Today, let’s understand why we all overprice things we own and how this actually makes us lose money and good opportunities a lot of time.
Understanding Endowment Effect and How it Affects Us
The Endowment Effect is our tendency to give more value to things simply because we own them. Once something is ours, we get emotionally attached, and suddenly, it feels far more valuable than it actually is.
For example:
- Selling a House – You think your house is worth ₹3 crore, but buyers are quoting ₹2.6 crore. You feel offended—”Don’t they see how beautiful and peaceful is this place?”
- Holding on to Stocks – You bought a stock at ₹1,000, but now it’s at ₹800. You refuse to sell because “it was once ₹1,000″—even if fundamental or technical analysis says it might fall further.
- Old Gadgets & Clothes – That old iPhone or designer Saree sits in your cupboard because “it’s still in good condition”—even though you haven’t used it in years.
Endowment Effect in Play: Why Do We Overvalue What We Own?
- Emotional Attachment – We attach memories, effort, and meaning to our possessions.
- Fear of Loss – Losing something we own feels more painful than gaining something new.
- Status & Identity – We see our belongings as extensions of ourselves, making it hard to let go.
How the Endowment Effect Affects Your Finances
This bias can seriously impact your wealth-building journey. Here’s how:
1. Holding on to Losing Investments
Many investors struggle to sell bad stocks, mutual funds, or real estate investments because they don’t want to accept a loss. Instead of cutting losses and reinvesting in better opportunities, they stay stuck with underperforming assets.
What to do? Ask yourself—”Would I buy this investment at today’s price?” If not, consider selling.
2. Overpricing Your Assets
Whether it’s selling property, gold, or even your business, people often ask for unrealistic prices because they feel their asset is special. This leads to delayed sales and missed opportunities.
What to do? Check real market data and detach emotions from pricing decisions.
3. Hoarding Stuff You Don’t Need
Your home, wardrobe, and even Loft of the house may be filled with things you no longer use, but refuse to let go of. Clutter—whether physical or financial—drains energy and blocks new opportunities.
What to do? Think twice “Would I buy it again today?” If not, sell, donate, or discard.
Winning Over the Endowment Effect
- Shift Your Perspective – Think of your assets as tools for financial growth, not emotional trophies.
- Use Data Over Emotions – Whether it’s selling a house or an investment, make decisions based on facts, not feelings.
- Embrace Minimalism – Owning fewer, high-value assets (including investments) often leads to better financial health.
My Take
Not everything you own is worth keeping—only add real value to your life and wealth. The Endowment Effect tricks us into holding on to things we think are valuable, but true financial wisdom lies in knowing when to let go.
So, take a fresh look at your investments, your belongings, and even your money habits. Are you holding on to something just because it’s yours? If yes, maybe it’s time to set yourself free and make smarter financial decisions!