In one of the most replicated experiments in behavioral economics, Richard Thaler gave coffee mugs to half the participants in a room. He then asked the mug owners to set a selling price and the non-owners to set a buying price. The median selling price was $5.25. The median buying price was $2.75.

The mug was identical. The only difference was ownership. Possessing the mug nearly doubled its perceived value.

This is the endowment effect — and it distorts business decisions with a consistency that would alarm anyone who noticed it.

The most common expression of the endowment effect in business is overvaluation of existing assets, products, and positions. The company that built its brand around a particular product will defend that product long past its market relevance — not because the data supports continued investment, but because ownership creates an inflated sense of its worth.

Kodak owned film photography. The company invested $2 billion in digital imaging research in the 1990s but repeatedly declined to pivot because film was profitable and — in the minds of Kodak's leadership — irreplaceable. Film was the asset they owned. Its value, in their assessment, was higher than any alternative. The market disagreed.

BlackBerry owned the enterprise smartphone market in 2007. When the iPhone launched, BlackBerry's leadership dismissed it as a consumer toy. The physical keyboard, the enterprise security features, the carrier relationships — these were assets BlackBerry owned and valued at a premium. The market, once again, set a different price.

In both cases, the leadership team was not unintelligent. They were endowed. They overvalued what they had because they had it — and that overvaluation prevented them from seeing what was coming.

The same dynamic plays out in smaller decisions every day. A founder who built the company website overvalues it — the competitor's site is objectively better, but "ours works fine." A sales director who designed the current commission structure resists changes — the new structure produces better alignment, but "we've always done it this way." A marketing team that developed a brand tagline defends it against research showing customers don't understand it — because the tagline is theirs.

Notice the pattern. In each case, the person closest to the creation is the person least capable of evaluating it objectively. Ownership doesn't just increase perceived value — it reduces the capacity for critical assessment. The thing you built is harder to critique than the thing someone else built, even when the critique is identical.

Nowhere is the endowment effect more visible than in business valuations when a founder decides to sell. The gap between what the founder believes the business is worth and what the market will pay is almost always explained by the endowment effect.

The founder includes in their valuation the years of effort, the personal sacrifices, the relationships built, and the potential they see in the company's future. The buyer values only the future cash flows they can verify. The gap — often 30% to 50% — is pure endowment effect.

This is why third-party valuations exist. Not because founders cannot do arithmetic, but because they cannot do arithmetic objectively about something they own. The external appraiser has no emotional attachment to the business and therefore no endowment bias. Their number is almost always lower than the founder's number — and almost always closer to what the market will pay.

The most effective correction is the outsider test. For any significant business decision involving an existing asset, product, or strategy, ask: what would an outsider — someone with no history, no attachment, and no ownership stake — decide?

If an outsider were evaluating your product line, would they invest in the same products you are defending? If an outsider were reviewing your organizational structure, would they keep the same roles and reporting lines? If an outsider were assessing your market position, would they compete in the same segments?

The outsider has no endowment effect because they own nothing. Their evaluation is purely forward-looking — which is exactly how business decisions should be made.

Bringing actual outsiders into these conversations — advisors, board members, consultants — provides a structural correction. Their value is not their expertise, though that helps. Their value is their lack of ownership. They see what you cannot see because they do not have what you have.

The mug experiment is trivial. The principle behind it is not. Everything you own looks more valuable to you than it looks to anyone else. In business, that gap is where capital is wasted, strategy is delayed, and competitive advantage slowly erodes — one defended asset at a time.