Economics Endowment Effect Questions Medium
The Endowment Effect is a cognitive bias that describes the tendency of individuals to value an item they own more than the same item when they do not own it. Self-identity plays a significant role in this phenomenon.
Self-identity refers to the way individuals perceive and define themselves, including their beliefs, values, and personal characteristics. It influences how people view and attach meaning to their possessions. When individuals acquire an item, they often incorporate it into their self-identity, considering it as an extension of themselves.
In the context of the Endowment Effect, self-identity leads individuals to assign a higher value to the item they own because it becomes intertwined with their sense of self. This attachment to the possession creates a psychological ownership, making it more valuable to them than it objectively is.
Moreover, self-identity also influences individuals' perception of loss. People tend to experience a stronger emotional response when they lose something they consider part of their self-identity. This emotional attachment further enhances the Endowment Effect, as individuals are more reluctant to give up an item they perceive as an integral part of themselves.
For example, if someone owns a vintage guitar and identifies themselves as a passionate musician, they are likely to value the guitar more than its market price. The guitar becomes a symbol of their musical identity, and parting with it would feel like losing a part of themselves. Consequently, they would demand a higher price to sell the guitar compared to what they would be willing to pay to acquire it.
In summary, self-identity plays a crucial role in the Endowment Effect by influencing individuals' attachment to their possessions and their perception of loss. This bias leads people to overvalue items they own, as these possessions become intertwined with their sense of self.