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: