Hello. In this lecture, we're going to be talking about the third psychological principle or effect that you can use to develop your business to the next level. It's called the endowment effect. As usual, let's start with the definition and examples. What is the domino effect? The fact that people often demand much more to give up an object than they would be willing to pay to acquire it is called the endowment effect.

Or in other words, when we own something, we tend to value it more highly. If we have to sell it, we want more than it's really worth. Now I want to share with you a famous example. A clever experiment was conducted in 1990s, involving Cornel undergrads in coffee cups. The social scientists distributed coffee cups to half of the students, but left the other half empty handed. The former group estimated selling price in the letter group Estimated buying prize.

Would the students with coffee cups asked for more. This is the question here. This is exactly what the researchers found. The undergrads with cups were unwilling to sell for less than $5 25 cents. While they are less fortunate peers were unwilling to pay more than $2 25 cents to $2 $2 75 cents. This is a range they give a range.

The question is what causes the endowment effect? The reason given in the literature is because people are inherently loss averse. loss aversion is another phenomena. But basically what it means is that the losses hurt more than equivalent gains feel good. Now another example, a study at Duke University found that students who had won basketball tickets valued tickets at $2,400 those Who had not won basketball tickets would pay only $170. So big of a difference we have here.

Now, I want to make an interesting connection. It is between two things, Dean domino effect one hand and the open source model on the other. You see customers want to be involved in projects, the feeling of ownership is quite strong. Three of the most famous open source project that we use on a daily basis are Wikipedia, WordPress, and Android. Hundreds and thousands of developers are working on these projects each and every day. And besides many other benefits they obtain the feeling of being a part of such project is there the feeling of ownership.

So the endowment effect. When we own something, we tend to value it more highly. If we have to sell it. We Want more than it is really worth. In the next lecture, we'll see how we can turn this into our advantage. Thank you for watching and see you there.