Why we hold on long even after the usefulness is gone.

Every season, Nisha promised herself she would declutter her wardrobe. Every season, she would open the cupboard, sigh at how full it was, and begin the same dance: pull out shirts, hold them, feel something, and quietly fold them back.

It wasn’t that the clothes were in perfect condition. Some hadn’t fit for years. Some belonged to trends long gone, according to her own self. Some held memories she no longer needed to keep.

But each time she tried to let go, a small voice whispered:
“I paid so much for this.”
“I might need it someday.”
“It’s still ‘mine.’”

Her friends joked about her “museum of outfits,” but the truth was softer and more personal: Everything in that closet felt valuable simply because it was hers.

Meanwhile, every morning she still felt like she had “nothing to wear.” It was not because she lacked options, but because she couldn’t release the ones holding space.

One weekend, she stood in front of her wardrobe again. She knew change was needed. She knew the clutter held her back. Yet she couldn’t let go.

Understanding the Endowment Effect

Nisha’s hesitation mirrors a well-documented behavioural bias: the endowment effect.

It describes how people assign higher value to things simply because they own them — not because those things are actually more useful, meaningful, or objectively worth more.

Breaking it down

  • Endowment: Ownership, and that comes the moment something becomes “mine.”
  • Effect: A psychological distortion that increases its perceived value.

Together, the endowment effect means that we overvalue what we own, and we resist letting go even when the rational choice is obvious.

The effect has been replicated countless times. A landmark study by Daniel Kahneman, Jack Knetsch, and Richard Thaler found that participants who were given mugs valued them significantly higher than participants who were asked how much they were willing to pay to purchase the same mugs.

The difference? Only ownership. This distortion shows up everywhere, too:

  • People keep unused items “because they were expensive.”
  • They resist changing routines “because this is how I’ve always done it.”
  • They hold onto relationships, habits, or possessions long after those things stop serving them well.

In investing, this bias shows up notably when investors resist rebalancing or selling underperforming assets simply because ownership feels safer than change.

How the Endowment Effect Impacts Investing

While the story revolves around a closet, the same psychology plays out dramatically in financial decisions as well.

1. Holding losing investments too long

Investors often cling to underperforming assets simply because they bought them. Even when fundamentals weaken, selling feels like “giving up.” This is dangerous as attachment replaces analysis and emotional ownership begins to outweigh objective value.

2. Resisting rebalancing

The endowment effect makes investors disproportionately attached to certain holdings, especially those they selected themselves. This makes it harder to trim or rebalance, even when risk levels have become skewed. It should be remembered that compounding is important too, but only with right rebalancing structure.

3. Overestimating personal choices

People assume that because they chose something, it must be superior — a bias reinforced by ownership. This often leads to concentrated portfolios, insufficient diversification and many-a-times ignoring better alternatives.

The core pattern is the same: Ownership creates emotional inertia. Letting go feels harder than holding on even when logic, evidence, and long-term planning suggest otherwise.

The following weekend, Nisha tried something new. She asked her friend to help her sort the wardrobe, but with a twist: Each item was evaluated as if it belonged to someone else. Suddenly, shirts that felt “valuable” looked worn. Lots of dresses she had once adored now looked outdated. Jackets she held onto “just in case” revealed themselves as space-fillers.

The mental spell broke. Not because the clothes changed, but because she finally saw them without the glow of ownership. By the end of the day, she had cleared two-thirds of her wardrobe. She felt lighter — not because she had less, but because she finally let go of what was unimportant.

The next morning, she opened her closet and smiled. For the first time in years, she could see what was actually useful, not what was merely hers. Sometimes growth needs pruning. And pruning begins by seeing things for what they are — not for what they once meant.

Key Takeaways

  1. The endowment effect makes us overvalue what we already own, even when it no longer serves us.
  2. Comfort can disguise itself as value, but familiarity is not the same as usefulness.
  3. Letting go is an act of clarity, not loss, as pruning allows light, space, and progress to return.

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