The endowment effect is a phenomenon in which individuals value an item they own more highly than an equivalent item they don't own. The endowment effect has been found to play a role in financial decision making, as investors may hold onto investments they own despite changes in market conditions, or they may fail to sell losing investments and instead keep them in hopes of a price recovery.
An example of the endowment effect in everyday investing might be an individual who holds onto a stock that has been consistently underperforming, despite recommendations from their financial advisor to sell the stock. The individual may feel that because they own the stock, it has a special value to them that they don't want to let go of, even if it's not a good investment. Additionally, they may be overly optimistic about the stock's future prospects, and feel that it will eventually recover in value, even though market conditions suggest otherwise.
