A strong example in which both risk-averse and risk-seeking behavior is reflected is a trial subscription. Here, the consumer is first tempted to a free subscription to, for example, Spotify. There are no risks involved, only the profit of a free subscription for a month. However, after the free subscription has expired, people no longer want to do without it and canceling the subscription feels like a loss. We do not want to experience this loss, which is why we choose to extend the subscription.
The endowment effect means that we value our possessions more than the things we do not own. This effect can also be explained using prospect theory. Suppose that you can exchange a product that you own for another product that is equally valuable, then we generally choose not to exchange. Because if losses outweigh gains, then we experience an equal exchange as losses. In short, exchange leads to tears.
But how do you apply this when the consumer is looking for a product and does not yet own anything? This anecdote explains how sellers apply this mechanism.
It was during the autumn holiday in Zeeland uk whatsapp number when I had just turned fourteen. I was with my parents and sister for a day in Goes and I was allowed to pick out a birthday present. There is a beautiful mountain bike path in the forest near our house in Burg-Haamstede, so I wanted a brand new mountain bike. In the bike shop my eyes were immediately fixed on a metallic grey Giant. After pressing the brakes 25 times, the salesman asked if I wanted to cycle a lap on it. I cycled 10 laps around the parking lot behind the shop and was immediately sold. This was my bike!
By letting me hold the bike and take it for a test drive, I already considered it partly my property, which made me not want to part with it. The car dealer also applies this strategy by offering test drives.
Example with shares
The endowment effect also occurs with people who own stocks. When stocks are at a loss, people have difficulty parting with the stocks. This is because we assign a higher value to the stocks we own.
The same goes for shares that increase in value, we sell them too quickly. Because if our shares are at a profit, and we assign too much value to them because they are our property, then we consider the profit they are at to be excessively high and we usually sell too quickly.