Why endowment effect matters
It can preserve inherited, employer, founder, or legacy concentrations despite weak forward return and excessive risk.
How it is applied
Investors ask whether they would buy the current position at its market value, model tax and sale costs, and diversify under explicit limits.
Portfolio example
An heir refuses to sell inherited shares that would never be selected for a new portfolio.
How to interpret it
Ownership can convey genuine tax, control, or information advantages. The bias exists when attachment exceeds those benefits.
Limitations and common misconceptions
Counterfactual buy tests can ignore transaction costs, voting power, restrictions, and family objectives.
Sources and further reading
- The Behavioral Biases of IndividualsCFA Institute
- Behavioral Patterns of U.S. InvestorsU.S. Securities and Exchange Commission