Why the endowment effect reflects unbiased smart decision-making and can increase the willingness to trade

This paper reinterprets the endowment effect, as revealed in the classic mug experiments by Kahneman, Knetsch and Thaler, not as evidence of cognitive bias, but as an expression of rational, context-sensitive behaviour. Building on Knetsch’s legacy and Lancaster’s product characteristics theory, it argues that post-possession valuation shifts reflect new, utility-enhancing attributes such as familiarity, identity and control. This revisionist account challenges the standard behavioural economics narrative and reshapes our understanding of contingent valuation, emphasizing the need to incorporate ownership dynamics into survey design. Uniquely, the paper demonstrates that the endowment effect can enhance willingness to trade – particularly when ownership reconfigures power and legitimacy, as exemplified in Indigenous participation in Canadian resource governance. Rather than suppressing market efficiency, the endowment effect may enable more inclusive and meaningful exchange. The result is a new behavioural model of trade grounded in experiential, political and social realities and consistent real-world rational decision-makers.