The Endowment Effect: Why You Overprice Your Own Stuff, and a 5-Step Way to Price It Like a Buyer

If your listings sit for weeks while the garage stays full, the problem may not be the market. It may be a predictable quirk in how all of us value what we own.

What is the endowment effect?

The endowment effect is our tendency to value something more simply because we own it. In classic experiments, people who were handed a coffee mug asked for roughly twice as much to sell it as other people were willing to pay. It helps explain overpriced listings, cluttered closets and trades that never happen.

Economist Richard Thaler, who won the 2017 Nobel Prize in economics, named the effect. The Royal Swedish Academy of Sciences, which awards the prize, wrote in its scientific background on Thaler's work that in a 1980 paper "he coined the term endowment effect for the tendency of individuals to value items more just because they own them." The Nobel press release put it simply: Thaler "showed how aversion to losses can explain why people value the same item more highly when they own it than when they don't."

This matters for everyday money in a very practical way. Every time you sell a used couch, a stroller your kids outgrew, a bike, a phone or a car, you are the owner setting a price for a buyer who does not share your attachment. If you price from the owner's chair, the item often does not sell, and you end up keeping something you meant to turn into cash.

The coffee mug experiments that made the effect famous

The best-known evidence comes from a 1990 study by Daniel Kahneman, Jack Knetsch and Richard Thaler, published in the Journal of Political Economy. The setup was simple. In a classroom, half the students were given a coffee mug and half were not (at Cornell, the students in alternating seats got one). The mug owners could sell, and the others could buy. Because who got a mug had nothing to do with who liked mugs, economic theory predicted that about half of them would change hands.

That is not what happened. In the first experiment, at Cornell, the mugs sold for $6.00 at the campus bookstore. The median price at which owners were willing to sell was $5.25 in every round, while the median price buyers were willing to pay was between $2.25 and $2.75. About 11 trades were expected in each round, but only four, one, two and two actually happened, according to the published paper.

A later experiment in the same paper, at Simon Fraser University, added a clever third group called "choosers." Choosers did not own a mug. They simply said whether they would rather have the mug or a sum of money. The median valuations were $7.12 for sellers, $3.12 for choosers and $2.87 for buyers. About 12.5 trades were expected, and only three took place.

The choosers are the key. They were in the same position as sellers, picking between a mug and cash, except that they had never been told the mug was theirs. Their valuation landed right next to the buyers', not the sellers'. In other words, the gap was not about buyers being cheap. It was about owners feeling a loss when giving something up.

An even simpler test came from Jack Knetsch, in a 1989 paper in the American Economic Review. One group got a mug, another got a chocolate bar, and each was offered a straight swap. According to a reprint of the paper, 89% of the mug owners kept their mug, and 90% of the candy owners kept their candy. A third group that started with nothing split more evenly, with 56% choosing the mug. Whatever people happened to be handed first, most of them stuck with it.

Why owning something changes how we value it

Researchers link the endowment effect to loss aversion, the finding that losses feel bigger than equal-sized gains. Kahneman, who won the 2002 Nobel Prize in economics, wrote in a 2003 article based on his Nobel lecture that the way people value outcomes is steeper for losses than for gains "by a factor of about 2–2.5." In the same article, he noted that "the selling price for consumption goods is much higher than the buying price, often by a factor of 2 or more."

When you sell your old bike, your brain files the sale as losing the bike, not as gaining the cash. A buyer files the same deal as losing money. Each side is guarding against a loss, so the two prices drift apart. We covered the broader bias in our guide to loss aversion and money.

Time can make it stronger. A 1998 study by Michal Strahilevitz and George Loewenstein in the Journal of Consumer Research found that "valuation increases with duration of ownership," according to the study's abstract. That fits a common experience: the guitar you have had for 15 years feels worth far more than the one you bought last spring, even if they are the same model.

There is good news, too. Experience seems to shrink the effect. Economist John List studied traders at sports card shows and reported in the Quarterly Journal of Economics that "market experience significantly attenuates the endowment effect," according to a copy of the 2003 paper. People who buy and sell often learn to treat their inventory as goods to trade, not pieces of themselves. You can borrow that mindset even if you only sell a few things a year.

A 5-step way to price your stuff like a buyer

These steps turn the research into a routine you can use for a yard sale, an online listing or a bigger sale like a car.

1. Start with what similar items actually sold for. Asking prices tell you what other owners hope to get, and they have the same bias you do. Look for completed sales of the same item in similar condition, write down three to five of them, and use the middle one as your starting point.
2. Ask the chooser's question. The choosers in the mug study valued the mug almost exactly like buyers did. So ask yourself: "If someone handed me this much cash instead, would I take the cash?" If the answer is yes at a lower number, that lower number is probably closer to the item's real value to you.
3. Separate the memories from the object. Much of what makes an item feel valuable is the story behind it. Take a photo of anything sentimental before you list it. The memory stays with you, and the buyer pays only for the object.
4. Set a floor and a deadline before you list. Decide in advance the lowest price you will accept and the date when you will lower the price, for example by 10% after one week. Making the decision ahead of time keeps you from rejecting a fair offer in the moment because it feels like a loss.
5. Get an outside opinion. Ask a friend who has no attachment to the item what they would pay. They are, in effect, a buyer. If their number is far below yours, the endowment effect is likely at work.

A worked example: pricing a used stroller

Say you have a stroller your youngest has outgrown. You paid $400 for it, and it carried your kids through three years of walks, so it feels like it is worth at least $250. Here is how the steps might play out.

In step 1, you find five recent completed sales of the same model in similar condition at $140, $150, $160, $175 and $190. The middle sale is $160, so that is your starting point. Your gut number of $250 is about 56% above the middle of the market, which is the kind of gap the mug experiments would predict.

In step 2, you ask yourself whether you would rather have the stroller or $160 in cash, knowing you will never use the stroller again. Most people in that spot would take the cash. In step 4, you list it at $160, set a floor of $135, and plan to drop the price to $144 (10% lower) if it has not sold in a week.

Now compare that with holding out. If you list it at $250 and it sits for three months, you still have no cash, the stroller is taking up space, and newer models may push used prices lower. If you pay for storage or a bigger apartment partly to hold things like this, waiting has a real monthly cost. Selling it at $150 this week puts money in your hands that you can use toward a goal, such as an emergency fund or paying down a credit card.

These numbers are only an illustration. Prices for used goods vary widely by item, condition and location, which is why step 1 matters most.

Where else the endowment effect shows up in your money life

Pricing used stuff is the clearest example, but the same pull toward keeping what you already have can show up in other choices. Some people hold on to a car longer than makes sense because selling it feels like giving something up. Some keep items "just in case" that they never use, and pay to store or move them. When you are deciding whether to sell something, it can help to remember the mug study: if you did not already own this, would you buy it today at its current price?

That question is not a rule to get rid of things. Plenty of items are worth keeping because you use them or love them. The goal is to notice when ownership alone is driving the decision. Our guide to minimalism and money looks at how owning less can free up cash and space.

If you discover you enjoy selling, the research on traders suggests you will get better at pricing with practice. Some people turn decluttering into a steady side income by flipping thrift finds. Our guide to reselling for profit covers how to get started.