What is an endowment effect? A. The tendency of individuals to value an item mor
ID: 1228085 • Letter: W
Question
What is an endowment effect?
A.
The tendency of individuals to value an item more when they own it than when they do not. For example, many people would refuse to pay $5 for a simple coffee mug but would also refuse to sell a simple coffee mug they won in a contest for the same price even though they got it for free.
B.
The tendency of individuals to feel entitled to certain items whether they own them or not. For example, many people cannot afford to buy their own home; however, as Americans, they feel entitled to home ownership.
C.
The tendency of individuals to value an item more when they must purchase it than when they receive it for free. For example, many people would refuse to sell a coffee mug they paid $5 for but would gladly sell the same coffee mug if they won it in a contest and got it for free.
D.
It is the theory of consumer behavior that predicts that consumers behave a certain way because of the attributes they are endowed with. For example, the theory predicts that people endowed with musical abilities will become singers or musicians.
Explanation / Answer
A.
The tendency of individuals to value an item more when they own it than when they do not. For example, many people would refuse to pay $5 for a simple coffee mug but would also refuse to sell a simple coffee mug they won in a contest for the same price even though they got it for free.
In behavioural economics, this theory exists because the perceived greater value occurs merely because the individual possesses the object.
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