In this post, you’ll learn why you place extra value on things you already own. And how marketers, retailers, and employers use that behavioral trait to entice you into action (or inaction). From your willingness (or unwillingness) to pay market price, to the value of a chocolate bar that is already in your hand; the endowment effect examples trickle all the way into your investment portfolio.

1. The endowment effect
2. Clever marketing
3. The IKEA effect
4. Staff incentive schemes
5. Self-control and bonuses
6. Your investment portfolio
7. Be smart!

This happened even when there was no cause for attachment to the mug and it was only given to them a few moments before they set their price. What we can learn about this is that once you have something, foregoing it feels like a loss (and we are all loss averse).

This is also why we are better at collecting things than throwing things away.

Now, what might a wise marketer do with this knowledge? Perhaps tell you to try the products out for a bit before paying? How many mobile apps say you’ll get 30 days free use and only billed thereafter? You think, “great, let me use this for 30 days and then I’ll cancel”. But… once you’ve started using it, you build an attachment and cancelling it feels like a loss. Marketers are so clever.

At the very least, be mindful of the endowment effect. It’s great that we can buy something and try it out with the option of returning for a full refund if we’re not happy. But don’t entertain this type of consumer behaviour. Beware behavioral economics. You now KNOW that you’re less likely to give things up once you have them in your possession.

Be mindful of overvaluing your investments simply because of the vast amount of effort you put into analysing them. Don’t miss future changes because you’re happy with your historical research efforts. Always acknowledge evidence that tries to disprove a decision.

Building an IKEA desk is fine but equating its value to that of a craftsman is beyond biased. It’s the same senseless comparison when you try compare your IKEA investment portfolio to that of one put together by a professional.

• Heuristics and biases in decision making – This was the first post in the series which shares some behavioural economics research. Specifically, the heuristics and biases that influence our relationship with money. It uses System 1 and System 2 thinking examples from Daniel Kahneman’s New York Times best selling book, Thinking Fast and Slow, to help us be more conscious of the workings of our brain. 

• Mirror, mirror, on the wall, stop telling me I’m wonderful – This post focuses on the impact of overconfidence bias in decision making. It introduces the illusion of knowledge bias and the illusion of control bias to illustrate the difference between confidence and carelessness. It also discusses the better than average effect, the self-serving bias and fundamental attribution error. You’ll learn how to confront some unpalatable truths and get out of any false sense of comfort (if you’re up for the challenge?).

• Why you can’t argue with a vegan – Ballsy title, we know. But if you read the post you’ll (hopefully) understand why. We’ll be discussing confirmation bias. It’s one of those psychological biases that you can see everywhere. We’ll also touch on cognitive dissonance theory. We all struggle with these biases. They’re both humorous and serious. But because of that, it’s useful to know how to avoid confirmation bias when you need to.

• Size does matter… when it comes to framing – This post uses framing effect examples to show how framing bias influences the way we interpret information and make decisions. We discuss glossing, the compromise effect, and how the size of the frame can influence the volatility of your investment portfolio.

• Loss aversion vs risk aversion – Once you understand framing, you’re ready for this post. It introduces an incredibly powerful bias known as loss aversion. It also touches on prospect theory, the disposition effect and impression management.

• Anchors pulling you down? – Anchoring bias is a straightforward behavioural bias that causes us to focus on a certain initial value and then make decisions with reference to it. This post looks at some examples of this anchoring effect.

• The danger of the default – Default options nudge us to make better decisions. The option of opting out also respects freedom of choice. This post unpacks this notion of libertarian paternalism and the perils of status quo bias.

• Regret, it’s not a nice feeling – Regret influences the decisions we make and pushes us to conform to social norms. Examples of regret avoidance show us how this makes complete sense yet no sense at all.

• When the past influences the future – The Concorde effect is a famous example of sunk cost investment. Too often we invest time, money and energy into something we should’ve just abandoned. This post looks at some examples of how sunk cost fallacy affects our human decision processes.

• How to improve self-control – Self-control is an essential life skill. It’s what separates humans from the rest of the animal kingdom. Learn how to improve self-control to achieve your long-term goals.

• Procrastination is the enemy of success – We know procrastination is the enemy of success. But while it looks like laziness, it’s often just mental exhaustion at play. Learn how to overcome procrastination.

• The problem with wanting it now – When you delay instant gratification, you will experience long-term satisfaction. It’s the hyperbolic vs exponential discounting debate. Don’t let present bias win!

• The power of first impressions – The order of information influences your decisions. First impressions matter! It’s all got to do with primacy and recency effects.

• We prefer wrong information to no information – Availability bias and survivorship bias influence our decision-making. We make decisions based on the information available to us.

• Learn to deal with uncertainty – Risk and uncertainty will always surround us. Gambler’s Fallacy, the hot-hand effect, the law of small numbers & ambiguity aversion are just some of the biases that arise because of it.

• Stop stereotyping – Representativeness heuristic refers to the fact that we stereotype. It’s a mental shortcut. But beware of making unfounded comparisons.

• Mental Accounting – Money is money! Or is it? Mental accounting says we place different values on different money which leads to irrational decision making.

• Money Illusion– Money illusion is a sneaky bias. It causes us to focus on the amount of money in our hands, rather than it’s purchasing power.

• Home bias – We invest close to home and in what we know. But this lack of diversification results in missed opportunities. Say hello to ‘home bias’.