6. The endowment effect Suppose passengers on an airplane are randomly assigned

Question

6. The endowment effect Suppose passengers on an airplane are randomly assigned to seats that are either on the aisle or by the window. Knowing that all passengers would prefer a seat by the window, the head flight attendant asks those who were assigned to an aisle seat how much they would be willing to pay to get a window seat instead. On average, the flight attendant finds that they would pay $20 Drawing on the insights of behavioral economics, you would expect that (on average) passengers who are initially assigned to a seat by the window would not be willing to accept $20 to switch to an aisle seat. This is an illustration of the endowment effect swreutd nat y be wili

Explanation / Answer

The correct answers are 1) would not

2) endowment effect

Endowment effect in behaviourial Economics is the psychological hypothesis that people assign more value to the things merely bcoz they own them.

Thus increment in the value of the good is dependent on the ownership of the good.

Thus in behaviourial science, the endowment of the good changes the individual's Economic behaviour towards that good.

Considering the valuation situation, people will tend to pay more to retain something they own than to obtain something they do not own

Thus the people who have been allotted the window seat will give up their seat only at a very high price, even though they aren't very sentimental in sitting on window seat, but bcoz of the fact that they own the window seats, it's their initial allocation, hence their endowment, so they will not simply give up their seat for a small amount, oy if they are really paid gold amount, that they will agree

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