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Endowment Effect

Endowment Effect


The endowment effect is cognitive bias that refers to how people overvalue items they own or even partially own. It is particularly noticeable for items that are not normally bought or sold on a market. They often have sentimental, emotional or symbolic significance. It is an example of the status quo bias and is driven by loss aversion and a desire to avoid regret.

Free trials are a good way of benefiting from the endowment effect as they give partial ownership to customers which many are then reluctant to give up when the trial ends. Spotify.com use the free trial strategy extensively. It’s also a great way for customers to understand the full benefits of the service. Also see behavioural economics.


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