The endowment effect revisited: Is decision-making more smart than biased?

For more than 3 decades, the endowment effect has been regarded as one of the most influential concepts of behavioral economics. Its core premise is that people tend to value something more highly once they own it. Traditional research has treated this as evidence of irrational decision-making. The argument from this camp is that ownership creates a psychological bias that discourages trade and reduces economic efficiency.Research conducted by Altman (2026) challenges that long-standing view. Rather than seeing the endowment effect as a flaw in human thinking, it purports that ownership often changes an item's real value to its owner in meaningful ways. If that is true, people are not behaving irrationally. On the contrary, they are making sensible decisions based on an expanded understanding of what the object means to them.The debate stems from the famous “mug experiments” conducted by Jack Knetsch, Daniel Kahneman and Richard Thaler. In these studies, participants who received a coffee mug as a gift demanded much more money to sell it than others were willing to pay to buy the identical mug. Economists interpreted the gap between willingness to accept (WTA) and willingness to pay (WTP) as proof of the endowment effect. By extension, it served as evidence that people systematically violate the assumptions of rational economic behavior.According to the traditional explanation, ownership creates a form of cognitive bias known as loss aversion. Selling the mug feels like a loss. And people weigh that loss more heavily than the equivalent gain from buying the same item.The implications were profound. If buyers and sellers value identical goods differently simply because of ownership:The study by Altman (2026) contends that this conclusion could be flawed. It suggests that ownership changes the nature of the item itself. Once someone possesses the mug, it is no longer just an ordinary mug. Instead, it accrues “mug-plus” status. This defines an object that has become enriched by familiarity, personal attachment, memories, identity and a sense of control. Characteristics that didn't previously exist genuinely increase its value to the owner.From this perspective, the higher selling price is not evidence of inconsistent preferences. People are no longer comparing identical products. They are instead comparing two different goods. One is standard mug and the other a personally meaningful one.This interpretation draws on product characteristics theory, which argues that consumers derive satisfaction both from the:Ownership can create new characteristics that legitimately increase utility. Emotional attachment and personal significance are prime examples. As a result, the endowment effect reflects rational decision-making rather than psychological error.The author also places his argument within the broader tradition of behavioral economics. Rather than measuring human behavior against idealized economic models, this approach claims that people generally make intelligent decisions within the constraints of the real world. Nobel laureate Vernon Smith similarly cautioned that when experiments contradict standard economic theory, researchers should question the theory rather than automatically conclude that people are irrational.Even some leading figures in modern economics acknowledge that ownership can legitimately increase value. For instance, a family may refuse to sell a long-time home for a price far above what they would ever pay for an equivalent house because memories and personal history make the two properties fundamentally different.Furthermore, the implications extend beyond laboratory experiments. One important function concerns contingent valuation surveys, which governments use to estimate how much people value public goods such as clean air, biodiversity and parks. Conventional survey methods assume that willingness to pay and willingness to accept should be roughly equal. But if ownership and experience genuinely increase value, these surveys may underestimate the benefits of goods that respondents have never experienced.Better-designed surveys would be beneficial here. They would ideally include:This would produce more accurate estimates for public policy.A distinction between consumable goods and tradable assets is made in the current study. It is claimed that the standard interpretation of the endowment effect often overlooks this difference.People buy mugs and other consumable goods primarily to enjoy them. It is therefore perfectly rational for ownership to increase their personal value. Conversely, tradable assets are acquired with exchange in mind. In these markets, ownership often encourages rather than discourages trade.Research has shown that experienced traders frequently display little or no endowment effect. When participants think like market traders instead of consumers, the gap between buying and selling prices largely disappears. One assumption from this is that the effect depends heavily on context rather than reflecting a universal cognitive bias.Perhaps the strongest challenge to the traditional interpretation comes from situations where ownership actually encourages trade instead of discouraging it.The experience of indigenous communities in Canada's resource sector provides a compelling example. Historically, many First Nations groups opposed oil and gas developments because they lacked:However, where Indigenous communities have acquired equity stakes in pipelines, energy infrastructure and resource developments, attitudes have often shifted towards active participation. Ownership alters the incentives surrounding trade because it transforms the relationship between communities and the assets involved.The resources themselves have not changed, but ownership gives them new meaning. Instead of being symbols of exclusion, they become instruments of self-determination, economic independence, employment and long-term community development. In this environment, ownership didn't reduce the willingness to engage in mutually beneficial trade. It actively increased it.This proposed broader understanding of ownership incorporates social, political and psychological dimensions that are often ignored in conventional economic models. In this revised view, markets are shaped not only by prices but also by identity, trust, legitimacy and power.Ultimately, the present study calls for a revised understanding of the endowment effect. Instead of treating higher valuations after ownership as evidence of irrational bias, economists should recognize that ownership often creates real, value-enhancing characteristics. Emotional attachment, familiarity and identity become legitimate components of utility rather than distortions of it.This perspective also challenges the widespread assumption that the endowment effect inevitably reduces trade and economic efficiency. Under the right conditions, it can actually encourage exchange by:Likelihood especially increases when ownership changes people's relationship to an asset.Viewed in this light, the endowment effect becomes less a story of human error and more a reflection of how value evolves through experience, identity and ownership. And rather than undermining rational choice, it may reveal a richer and more realistic understanding of how people make context-dependent decisions.This review is based on “Why the endowment effect reflects unbiased smart decision-making and can increase the willingness to trade” by Morris Altman, published in the Review of Behavioral Economics.