Question

Give an example to illustrate the endowment effect.

Answer 1

The endowment effect is a hypothesis that people value a good more once their property right to it has been established. In other words, people place a higher value on objects they own relative to objects they do not.

For examples, sellers who own the coffee mugs will be willing to sell them at $2 per piece whereas buyers may be willing to pay only $1 per piece. That is, sellers place high value on mugs than the buyers simply because they own it.