The scales are tipped: Loss is heavier than gain

Consumers don’t treat comparable size gains and losses the same. Instead,

losses seem to loom larger than gains. At times, losses outweigh the gains

when it comes to adopting a new product. In other words, when a consumer

is forced to give up a specific benefit, the loss creates significantly more pain

than the pleasure that’s gained from a new benefit.

 Research shows that losses are two to three times more painful than compara-

bly sized pleasurable gains. Why the imbalance? The reason boils down to an

issue of value: Consumers value items that are in their possession more than

they value items that aren’t in their possession. Behavior economist Richard

Thaler labeled this theory as the endowment effect.

The idea behind Thaler’s theory is that when a person has possession of

something (meaning he owns it), he tends to value it more. In fact, he may

value it so much that if he were required to sell it, he would want to ask the

buyer to pay more than it’s worth. For example, consider the vehicle that you

own, and then ask yourself the following questions:

 ✓ How much would you sell it for?

 ✓ How much do you think people would pay for it?

 ✓ How much would you pay for it if you saw it for sale at a car lot?

If the endowment theory is true, you would see your vehicle as being more

valuable to you than it is to other people — that is, the amount you would

want to sell it for is higher than the amount you would be willing to pay for it