TOEFL Speaking Task 3

In behavioral economics, the "endowment effect" refers to the tendency for people to value an object more highly simply because they own it. This effect occurs even when the object was acquired randomly or recently, and it often leads to irrational decision-making, such as demanding a higher price to give up an item than they would be willing to pay to acquire it. The effect is explained by loss aversion: people feel the pain of losing something more intensely than the pleasure of gaining something of equal value.

Professor: Let me give you a classic example from a study. In a university experiment, researchers gave half the students in a class a coffee mug with the university logo. The other half received nothing. Then, the researchers told the mug owners they could sell their mugs, and the non-owners could buy one. The owners were asked the minimum price they would accept to sell their mug, while the non-owners were asked the maximum price they would pay to buy one. Surprisingly, the owners’ average asking price was about $7, but the non-owners’ average offer was only about $3. The mugs were identical, and the students had only owned them for a few minutes. The owners valued the mug much more simply because they possessed it, even though they hadn't chosen it. This demonstrates how ownership inflates perceived value, leading to a gap between selling and buying prices.