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Avoiding the Price Reduction Talk
The Endowment Effect, sometimes called the Ownership Effect, is a psychological and behavioral economics principle that says people attribute a higher value to things they own simply because they own them. An excellent example of this effect in action is at rummage or yard sales. Instead of pricing something according to the actual market value an item may have, the item is instead priced higher simply because of the attachment the owner has to it.
 
Nobel Prize-winning economist Richard Thaler teamed up with two co-authors in a now-famous experiment detailing this exact phenomenon. In the experiment, the researchers gave half of a group of students a coffee mug, while the others were given pens, and then opened a market in mugs. Students who were randomly given the mugs regarded them as twice as valuable as those who did not get a mug.  
 
As a real estate agent, it’s an agent’s job to help clients get the best price for their home. Understanding the psychology behind why people act and believe as they do can help to explain why a homeowner believes that their outdated home is worth more than it really is, but it doesn’t make the conversation about price reductions ... more

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