Endowment Effect – When a bird in hand is more than two in the tree

Here is an Ad for Wendy’s double stack burger that shows very neatly Endowment Effect. (wait for 7 seconds into the video for the Wendy’s Ad, as the beginning of the video has another Ad for Religulous)

The Adman says, “your burger has increased in value”. This is only partly true as the value is in the minds of the customer who is holding it and it is the perceived value. Endowment Effect is a theory introduced by Thaler  (of Nudge) and it states that people who own things  tend to value these more than others. Since their perceived value goes up, they are less reluctant to part with the goods at prices they bought or at the current market price.

This is the same reason home prices are not falling as fast as economic  theories suggest – people own their homes more than the market is willing to pay.

As a corollary, if the customer feels ownership of the object then their   willingness to pay goes up as well. An example of this was discussed in my last post  You touch it! You own it!