Would You Buy That Investment Again at Today’s Price?
Asking your clients that question about positions they're clinging to can help them overcome endowment bias.
This is the 16th article in the Behavioral Finance and Macroeconomics series exploring the effect behavior has on markets and the economy as a whole and how advisors who understand this relationship can work more effectively with their clients.
Endowment bias, which is an emotional bias, is inconsistent with standard economic theory, which asserts that a person's willingness to pay for a good or an object should always equal the person's willingness to accept dispossession of the good or the object. In short, people who exhibit endowment bias value an asset more when they hold property rights to it than when they don't.