The Endowment Effect Is Robbing You Blind
Ever wonder why you stubbornly hold onto a bad investment, refuse to sell an unused item at a fair price, or keep paying for a subscription you no longer use? Your brain is tricking you.
In Thinking, Fast and Slow, Nobel laureate Daniel Kahneman introduces the endowment effect, the irrational tendency to overvalue what we own simply because we own it. This psychological bias doesn’t just affect what we keep—it actively robs us of opportunity cost.
Every time you refuse to sell a failing stock, keep an underperforming asset, or hold onto something you wouldn’t buy today at its current price, you aren’t just making a bad decision—you’re losing money by giving up better opportunities.
The Endowment Effect: Why We Overvalue What’s Ours
Kahneman, along with Richard Thaler and Jack Knetsch, demonstrated this bias in a famous experiment:
In other words, as soon as something became "theirs," its perceived value skyrocketed—even when it had no objective change in worth.
This same illusion of value wreaks havoc on financial decisions.
How This Bias Is Costing You Real Money
The endowment effect keeps you stuck, making you blind to better financial choices. Here’s how:
1. Holding Onto Losing Investments
You bought a stock at $100. Today, it’s worth $60. Selling means admitting a loss—so you hold on, waiting for a rebound.
Reality check: The market doesn’t care what you paid. The only question that matters is: Would you buy this stock today at $60? If not, sell and reinvest where your money can actually grow.
? Missed opportunity: That $60 could be in a better-performing stock, index fund, or another investment. By holding, you're choosing to lose.
2. Refusing to Sell What You Wouldn’t Buy
If the answer is no, then you’re sitting on dead weight.
? Missed opportunity: Every dollar stuck in useless assets is a dollar that could be earning returns elsewhere.
3. Keeping Bad Subscriptions and Services
You’ve had the same premium credit card for years, even though you barely use the perks. You’re still paying for a gym you never visit. Why? Because canceling feels like giving something up, even though keeping it means wasting money.
? Missed opportunity: That monthly fee could be invested, saved, or put toward something of actual value.
4. Staying in a Stagnant Financial Situation
Your past investment is gone. The only question that matters is: What’s the best choice going forward?
? Missed opportunity: The sooner you pivot, the sooner you can start winning instead of waiting.
How to Break Free and Stop Losing Money
Recognizing the endowment effect is the first step. Now, here’s how to fight it:
1. Use the "Would I Buy It Again?" Test
Ask yourself: If I didn’t own this, would I buy it today at this price?
2. Shift Your Focus to Future Gains
Stop worrying about past costs—they’re gone. Instead, focus on: Where will my money work hardest for me NOW?
3. Reframe Selling as a Win, Not a Loss
4. Track Your Opportunity Cost
Every time you hesitate to sell, think: What is this costing me in missed gains?
Would you rather: ? Own a bad investment that’s down 40%? ? Reinvest that money into something that grows?
Would you rather: ? Keep an unused asset because “it might be worth more later”? ? Sell it and use the money productively?
Final Thoughts: Stop Letting Your Past Control Your Future
The endowment effect is sneaky. It feels like you’re making rational choices, when in reality, you’re stuck in a trap of your own making.
If you want to build wealth, you must learn to detach from past investments and focus on future value.
?? Your money should be working for you—not sitting in things you wouldn’t even buy again.
So, ask yourself: What’s robbing me blind right now? And more importantly—what am I going to do about it?
Founder & CEO @ The INFIN | Driving 25%+ increase in business value in three months
4 天前Its tough because in that book (and I've also experienced myself), they identify that just because you are aware of the bias, it doesn't really matter. We tend not to do much about it anyway. Sure, some safeguards here and there, but we still feel the emotional pain and resistance. This tends to keep the status quo in play. Stuck.
Top Outsourcing Expert | I’ve built, scaled, and sold my businesses with an outsourced team | I now help businesses increase their profits and improve operations through outsourcing.
4 天前The longer I retain an investment, the more challenging it is to release it.
Founder at Executive Assistant Institute, Founder at WeTeachMe, Executive Assistant and 2iC Yoda. Leadership. Entrepreneurship. .
4 天前Love the 'Would I Buy It Again?' test—such a simple yet powerful way to evaluate financial decisions. Thanks for the insight!
Serial Entrepreneur, Breathwork Facilitator and EOS Implementer who helps Entrepreneurs make important decisions about life and business via The Decision Experience quarterly event.
4 天前Interesting takeaway! Have you found any strategies to counter the Endowment Effect in your investment decisions? Would love to hear how others manage this bias in real-world scenarios.
IAMBIC ? unlikely fashion founder ? AI-tailored, precision-fit shoes ? Techstars '24
4 天前This is such a powerful breakdown, David—It makes sense that the endowment effect can really drain wealth in ways most people don’t even realize. In your experience, what’s the hardest asset or investment for people to let go of, even when the logic says they should?