What does the Endowment Effect refer to in behavioral economics?

The Endowment Effect refers to the phenomenon where individuals assign a higher value to items merely because they own them. This concept is drawn from behavioral economics, which studies how psychological factors influence economic decision-making. When people possess something, they tend to regard it as more valuable than when they do not own it, leading to an irrational attachment to their own belongings or assets.

In the context of behavioral economics, the Endowment Effect helps explain why people may demand a higher price to sell an object they own than they would be willing to pay to acquire the same object if they did not possess it. This behavioral bias can impact decisions in various markets, including consumer goods, real estate, and even financial assets.

The other options touch on related concepts but do not correctly define the Endowment Effect. While the tendency to undervalue one's possessions or the inclination to favor the status quo might relate to decision-making discrepancies, they do not encapsulate the essence of the Endowment Effect. Similarly, the notion of overvaluing potential gains in stock trading is more aligned with concepts like loss aversion or the disposition effect rather than ownership specifically.