What is the Endowment Effect?
The endowment effect means that once an individual owns an item, his evaluation of the value of the item is greatly increased than before. It was proposed by Richard Thaler (1980). This phenomenon can be explained by the "loss aversion" theory in behavioral finance, which believes that a certain amount of loss will bring less utility to people than an increase in utility to the same benefit. Therefore, in the decision-making process, the balance of interests is uneven, and the consideration of "avoidance" is far greater than the consideration of "increasing profits." Out of fear of loss, people often demand excessive prices when selling goods.
Endowment effect
- Behavioral finance is based on theories of behavior, finance, sociology, economics, decision science, and psychology
- The Influence of Endowment Effect on Coase Theorem
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- Review of Endowment Effect Research
- Abstract: The endowment effect refers to the abnormal behavior of the selling price higher than the buying price due to the value added of the item because it is owned or simply because it belongs to itself. The article summarizes the experimental research and theoretical explanation of endowment effect, and reviews its application value.
- Pages: 2 pages
- Page range: 12-13 pages
- Keywords: endowment loss, aversion, emotional self-esteem
- Subject classification: F56 [Economy> Transportation Economy> Air Transport Economy]
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