What is endowment bias?

If endowment bias means that financial goals are unlikely to be met, then the emotional attachment to investments must be moderated. Small steps may be used to move toward acceptable asset allocation over time. We discussed the endowment effect, the tendency of people to value more if it is already owned.

What is a mere ownership bias?

It’s a bias that’s related to divestiture aversion, loss aversion, prospect theory and “the mere ownership effect”. What this bias really means is that, for most people, the very act of owning something increases that person’s perception of what that item is worth.

What are examples of cognitive bias?

They are designed to create habits and drive increased use. Examples of this include Fogg’s model and the Hook model of behavioral design. The idea behind this cognitive bias has been around for at least as long as the phrase “A bird in the hand is worth two in the bush”.

Do cognitive biases explain irrationality?

Cognitive biases clearly explain some of our “irrationality”. The Endowment Effect is just one example of this. Understanding our Dual Process way of thinking provides some further insight into it. This “irrationality” means that we’re all suggestible and susceptible to nudging and the powers of choice architecture and persuasion.