The Endowment Effect

The Endowment Effect is a concept in behavioral economics which states that people tend to increase their idea of the value of an item depending on whether or not they are the owner. The Endowment Effect was first hypothesized by the economist Richard Thaler and is an example of a big name for an idea that has been pretty obvious to stamp collectors and stamp dealers for many years. Apfelbaum engages to buy about 500 collection per year. These are collections from collectors who have contacted us to sell their stamps. For the most part they are the collectors who made the stamp collections so they are well versed with the quality and popularity of the material that they own and are aware of the prices that they paid for their stamps. They are, too, aware that stamp dealers have expenses and profits to make and that markups on philatelic material run a third or more. And most collectors have a modest Endowment Effect-they like their stamps and believe they have made many wise purchases over time. It is not unusual (and it is probably healthy) for collectors to have a 20-30% overestimation due to the Endowment Effect factor. But a few collectors-we call them the well endowed- have a crazy relationship with their stamps. They believe that their stamps are worth far more than they are really worth (generally simply for the reason that they are their stamps) and can in no way be persuaded otherwise. These are the same people who live in homes that have not gone down in value during the current recession.