The Endowment Effect

You overvalue things simply because they’re yours.

I’ve got a wardrobe full of clothes I haven’t worn in years. Won’t wear this year. Probably won’t wear next year either. But I can’t throw them away. Why? Because they’re mine, and I like to hang onto stuff. That’s the endowment effect in action.

You hang onto stuff not because it’s valuable any more, but because you own it. The mere fact of ownership inflates its value in your mind.

What the Endowment Effect Actually Is

The endowment effect is the tendency to overvalue something simply because you own it. Your stuff is worth more to you than identical stuff owned by someone else. Not objectively. Subjectively.

Kahneman and colleagues demonstrated this with coffee mugs. Give someone a mug, ask them what they’d sell it for. Give another person money, ask what they’d pay for an identical mug. The seller’s price is consistently double the buyer’s price.

Same mug. Different valuations. The only difference? Ownership.

This is loss aversion at work. We hate losses more than we value equivalent gains. Losing something we own feels worse than gaining something we don’t own feels good.

Why This Matters Beyond Old Clothes

The endowment effect isn’t just about physical stuff. It’s about everything you own, including things that aren’t doing you any favours.

A grudge. A label you’ve given yourself. A story about who you are and what you’re capable of. A version of your identity that’s got comfortable but stopped being useful.

I see people every week who’ve held onto a version of themselves for so long they can’t imagine being anyone else. “I’m just not a confident person.” “I’ve always been the disorganised one in the family.” “That’s just who I am.” Sometimes those stories give them an identity, a shorthand, even a kind of community with other people who describe themselves the same way.

Letting go of the story means losing all of that. So they hold on, even when the story is doing them harm.

The Patient Who Could Not Let Go

Fred (not his real name) came to see me a while back, stuck in a job he’d hated for a decade. He’d been telling himself, and me, and his family, the same story every time it came up: “I’m just not the sort of person who takes risks. I never have been.”

He’d owned that story for so long that it had become part of his furniture. It explained why he hadn’t gone for the promotion, why he hadn’t started the business he talked about, why he was still where he was. And, uncomfortably for him, it was easier to keep the story than to test whether it was actually true.

That’s the endowment effect applied to identity. You own the story. Ownership makes it feel more valuable, more fixed, more like a fact about the world, than it actually is. Even when the story is what’s keeping you stuck.

Prospect Theory and Loss Aversion

The endowment effect shows we make decisions based on potential losses and gains rather than final outcomes, and that we weigh losses more heavily than equivalent gains, even when, mathematically, they cancel out.

This is why you can’t let go of things. Losing hurts more than getting the same thing back would feel good.

Giving up a familiar story about yourself can feel like losing a support group, an identity, an explanation for why things haven’t gone the way you wanted. So you focus on what you’d lose by letting go, rather than what you’d gain by giving that story up.

The Identity Problem

The hardest thing to let go of is an identity built entirely around a limitation.

“I’m an anxious person.” “I’m just lazy.” “I’m broken.” “I’m a victim.” These aren’t just descriptions. They’re identities. And identities are the hardest things to let go of because they define who you are.

If your whole sense of self is built on being the anxious one, or the one who can’t cope, or the one things always go wrong for, getting better means becoming someone you don’t yet recognise. That’s genuinely frightening, and it’s a big part of why people stay stuck longer than the facts of their situation would predict.

The endowment effect makes you overvalue that identity, purely because it’s yours, even though it’s the thing standing between you and the life you say you want.

The Benefits Trap

Sometimes the things you’re holding onto provide real, if small, benefits, even when they’re harmful overall.

Smoking provides stress relief, social connection, routine. Over-eating provides comfort, pleasure, distraction. A toxic relationship still provides some attention, familiarity, and drama.

These benefits are real, small, but real, and you own them, so you overvalue them, and you may not want to let them go. You focus on what you’d lose: the comfort, the relief, the familiarity, however small. Not what you’d gain: the health, the happiness, the freedom.

Losses loom larger than potential gains, even when the gains are, on any honest reckoning, bigger.

The Sunk Cost Connection

The endowment effect is strengthened by sunk costs.

You’ve invested time, energy, emotion into this thing. Years of it. Letting it go feels like admitting waste. Admitting you spent all that time on something that needs discarding.

So you hold on, hoping it’ll eventually be worth it. Hoping your investment will pay off. It won’t. Sunk costs are sunk. You can’t get them back by holding on. You just waste more time.

But the endowment effect makes you overvalue what you’ve already invested, so you keep investing.

What Actually Helps

One caveat before we go further, because this section applies to beliefs, grudges and stories, not to genuine medical or mental health conditions. If you’re managing a diagnosed condition, whether that’s ADHD, anxiety, chronic pain or anything else, that isn’t something you chose to acquire, and it isn’t a story you can simply decide to stop telling. The right people to help you manage it are your GP or the specialist team looking after you, not a chapter in a self-help article. What follows is about the beliefs and identities you’ve built up around your circumstances, not the circumstances themselves.

With that said: start with your wardrobe. Literally. Those clothes you haven’t worn in years? Get rid of them. Give them to someone who needs them.

Not because they matter. Because it’s practice. Practice letting go of things you own but don’t need, and that are giving you very little in return.

Then move to the bigger things, the stuff in your head. Old grudges you’ve carried for decades. Relationships that ended years ago but you’re still processing. Limiting beliefs about yourself that are no longer true, if they ever were.

Ask yourself what you’re holding onto simply because it’s yours.

The Letting Go Process

Letting go starts with recognising the endowment effect is operating.

Ask yourself: “If I didn’t already own this, would I choose to acquire it?” If the answer’s no, you’re possibly overvaluing it purely because of ownership.

That toxic relationship. If you weren’t already in it, would you choose to enter it? No? So why are you staying?

That belief about yourself. If you didn’t already believe it, would you choose to adopt it? No? So why keep believing it?

A lot of the stories we tell ourselves are more subjective than they feel. It’s just that you’ve said them to yourself often enough that you’ve come to believe them, and you end up living by the limits they set.

Ownership is creating false value. Recognise that. Then let go.

Attention and Excuses

Sometimes the stories we hold onto provide a convenient answer for why something didn’t work out.

Didn’t succeed at a particular task? Be honest with yourself: is that because of a genuine obstacle, or has it become a ready-made excuse that lets you off the hook of actually trying?

If you find organisation genuinely difficult, the answer is building routines, structure and support that work with how your brain actually operates, and getting proper help where you need it, not simply deciding to “be more organised.” If interviews make you anxious, the answer is tackling the anxiety directly and practising the skill, ideally with proper support, not pretending the anxiety isn’t real.

What I’m talking about here is different: the stories that have quietly become permanent excuses. “Everyone in my family’s overweight, so what’s the point.” “I’ve always been bad with money, that’s just me.” Those are stories you’ve owned for so long they feel like facts. They’re worth testing, because the alternative, doing something different, means giving up the explanation that’s let you off the hook.

Letting go of that kind of story means taking responsibility, and finding a different explanation. That’s harder. So people hold on.

The Final Word

You own things you shouldn’t own. Grudges. Identities. Stories. Beliefs.

And because you own them, you overvalue them. The endowment effect makes letting go feel like loss. But keeping them is the real loss. They’re costing you your future whilst you cling to your past.

Start with the clothes. Practise letting go of things that are clearly useless. Then work up to the bigger things. The beliefs. The identities. The stories that have outlived their usefulness.

Ask yourself honestly: if I didn’t already own this, would I choose to acquire it?

If the answer’s no, let it go. Ownership is creating false value.

You can’t move forward whilst carrying everything you’ve ever owned.

Time to travel lighter. Drop some of that baggage.

Further reading

• Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coase theorem. Journal of Political Economy, 98(6), 1325-1348.
• Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.
• Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior & Organization, 1(1), 39-60.
• Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice: A reference-dependent model. Quarterly Journal of Economics, 106(4), 1039-1061.
• Ariely, D. (2008). Predictably Irrational: The Hidden Forces That Shape Our Decisions. HarperCollins.