Endowment Effect User Experience (UX) topic overview/definition
Endowment Effect: Concept Definition
The endowment effect refers to how humans tend to prefer objects they already possess over those they do not, thereby placing a higher value on an object they are asked to give up than on a similar object they are asked to obtain. Designers apply the effect to product and web design so as to influence user behavior.
The term emerged in the field of behavioral economics, where the empirical research of psychologists Richard Thaler, Daniel Kahnerman, and Jack Knetsch has shown considerable differences between buying and selling prices of consumption goods, even when strategic considerations (for making a profit) are excluded. The effect is generally interpreted as a manifestation of the “loss-aversion” principle, which states that humans weigh losses more heavily than they do gains.
When designing a user experience, designers can apply the endowment effect as something that will enhance the prospects of customer retention. For example, having accepted an offer for an initial free trial period for a digital product, users might start to consider the product as being something they “own.” Consequently, they might be more willing to pay a fair price for continuing to “own” it. This is opposed to the users approaching that item without having had the chance to sample it (in which case, lacking the warmth of an owner’s perspective, they would be far less prepared to pay that price for it). Naturally, the product has to prove itself to be of value to users; otherwise, they will not continue to use it. This effect can likewise account for why convincing customers to “switch” from a product they already find satisfactory to another is difficult—clearly the new product will have to offer considerably more, and at a lesser price, to convince a user to adopt it.
For your convenience, we’ve collected all UX literature that deals with Endowment Effect. Here’s the full list:
Loss Aversion Theory - The Economics of Design
If people were rational then the feelings invoked by losing something or gaining something (of equal value) ought to be the same. We should feel as pleased that our friend has just given us $100 for our birthdays as we feel bad that we have lost $100 when we forgot to take it from an ATM machine.In reality this isn’t the case. Psychologists and ...
Prototyping in Design Thinking: How to Avoid Six Common Pitfalls
The Design Thinking process cannot be done without prototyping and testing. However, for companies or teams unfamiliar with the Design Thinking method, there might be some common mindsets about prototyping that potentially undermine its effectiveness in helping you craft the optimal design solutions. Let’s look at six of the most common misconce...
Endowment Effect - The Economics of Design
The Endowment Effect is a contradiction of the classical economic idea that people always behave rationally within an economic system. It is the surprising idea that we are prepared to pay more money to retain something that we already own than we would pay for the item if we did not own it. It is often also shown that we are unwilling to trade ...