Episode Details

Today we will be digging in on the endowment effect. This concept is similar to a few you have heard on the show before, including loss aversion, the IKEA effect and even a little bit of reciprocity mixed in there. While they are similar, they are not the same.

The endowment effect is super impactful for all kinds of businesses. Everything from physical products to services, online versus brick and mortar shops; all can use the endowment effect to improve sales. And, yes, this even comes up when discussing change with members on your team (which I won't really get into today, see the Change Management episode link below for more on that). Listen to this episode and download your freebie worksheet to get tips for how you can use the endowment effect in your business.

• [00:41] In this episode, you'll learn what the endowment effect is, how it works, and tips on how you can use it.
• [02:15] EXCITING NEWS! This week, an article came out in Psychology Today called 21 Psychology Podcasts Every Businessperson Should Listen To. I'm so honored to say that The Brainy Business made the list!
• [03:04] In its simplest form, the endowment effect teaches us that we value things more when we own them (or have perceived ownership over them). To put it another way, we like our stuff more than other peoples' stuff.
• [03:21] It is incredibly easy to trigger the endowment effect. Even a slight change in words can make a huge impact.
• [04:00] By saying, "You will notice when you go to check out the article…" I am triggering the endowment effect. Making it personalized by using the word "you" makes a difference, but also saying, "when you do this thing" is really powerful for triggering perceived ownership in the brain (versus "if" you do this thing).
• [05:07] One very simple language shift that makes a huge difference when applying the endowment effect is the swap from "if" to "when."
• [06:08] The endowment effect is very closely linked to loss aversion, but as I said at the top of the episode, they are not the same thing. It makes the possibility of loss more apparent or clear in your mind. It makes it so you are more aware of losing something.
• [06:47] When you are given something or interact with it, your brain takes some ownership over it. It can become a part of your identity as the endowment effect takes place. You don't need to have physically purchased it or technically own it for this to happen.
• [08:07] The first thing you are given will act like the anchor that you are more likely to take ownership over and we aren't the only animals impacted by the endowment effect. Do monkeys prefer peanut butter or juice? It depends!
• [09:34] Being given the item first and told it was yours made it so it was worth more to you and you didn't want to get rid of it.
• [09:57] If you keep giving people things, there is no potential loss of the items they have so the endowment effect doesn't have much of an outward impact. It is only when that trade is presented and they need to give something up that we really see it in action.
• [10:24] Many businesses are set up so you earn things like credits. They may keep accruing and if you ever stop paying you will lose them all. That little twinge will keep you paying often for things you don't really use.
• [13:36] Building the endowment effect into your programs can keep people motivat