Mental models are a way of explaining how things work. Throughout our lives, we build up a personal collection of mental models to understand the world around us.
Mental models aren't perfect but developing a rich toolbox of them can be useful in navigating the complexities of life. Learning to intuitively apply the right models in the right situations is something we develop with practice.
This website is a curated collection of models with broad applicability in everyday life. There’s a focus on brief descriptions and simple, real life examples of the models in use.
Weekly Mental Model
Endowment Effect
We tend to value things we own higher than we would if we didn't own them.Description
The Endowment Effect is a cognitive bias that causes people to ascribe more value to things merely because they own them. This effect suggests that people are more likely to retain an object they own than acquire that same object when they do not own it. This bias can lead to irrational decision-making in various contexts, from personal possessions to financial investments, where owners overvalue what they own and demand more to give them up than they would be willing to pay to acquire them if they did not own them.
Examples
A person might refuse to sell a family heirloom at market price, valuing it more due to its personal significance and ownership history.
Investors might hold on to stocks or real estate longer than rational analysis would suggest, simply because they own these assets and overvalue them compared to if they were potential buyers.