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Endowment effect affects value perceptions from "summary" of Thinking Fast and Slow by Book Summary
The Endowment effect is a psychological phenomenon that influences how people perceive the value of things they own. This effect occurs because individuals tend to place a higher value on items they own compared to identical items they do not own. The mere fact of ownership leads to an increase in perceived value, regardless of the actual market price of the item. This bias in perception can have significant implications on decision-making processes, as it can lead people to make irrational choices based on emotional attachment rather than objective evaluation. For example, someone may be unwilling to sell a stock at its current market price simply because they own it, even if selling it and buying a different stock would result in higher returns. The Endowment effect is a product of System 1 thinking, which relies on quick, intuitive judgments rather than deliberate reasoning. This automatic response to ownership can override more logical considerations of value, making it difficult for individuals to make optimal decisions.- Individuals can make more informed decisions and avoid falling prey to the pitfalls of irrational thinking. Recognizing this psychological phenomenon can lead to more rational choices and ultimately better outcomes in various areas of life.
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