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Economist on the Endowment Affect
23rd June 2008
An important aspect of behavioural economics heading into increasing prominence is the endowment effect. Put simply, people place a high value on the things that they own even if this ownership has been distributed randomly across different people or groups.
“The endowment effect was controversial for years. The idea that a squishy, irrational bit of human behaviour could affect the cold, clean and rational world of markets was a challenge to neoclassical economists. Their assumption had always been that individuals act to maximise their welfare (the defining characteristic of economic man, or Homo economicus). The value someone puts on something should not, therefore, depend on whether he actually owns it. But the endowment effect has been seen in hundreds of experiments…....”
Excellent stuff, read the rest of the article here
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.