Asked by Geneiva Kaarto on Jun 19, 2024
Verified
Kate is attempting to sell her house for $260,000. Fred lives across the street in an identical house. Fred recently stated to his wife that Kate's house is probably worth only $250,000 but that once she sells her house, he would like to put their house on the market at $285,000 and then move into a condominium. Which one of the following behaviors applies to Fred?
A) Myopic loss aversion.
B) House money effect.
C) Money illusion.
D) Self-attribution bias.
E) Endowment effect.
Endowment Effect
A cognitive bias where people ascribe more value to things merely because they own them.
Condominium
A type of real estate owned individually, with shared areas co-owned and maintained by an association of owners.
Identical House
A conceptual term often used in real estate to describe homes that are exactly the same in design, size, and features for comparative purposes.
- Learn about the broad spectrum of concepts in behavioral finance, focusing on biases and heuristics.
Verified Answer
JS
jatinder singhJun 21, 2024
Final Answer :
E
Explanation :
Fred's behavior is an example of the endowment effect, which occurs when people value something they own more highly than something they do not own, simply because they own it. Fred believes his identical house is worth more than Kate's simply because it's his.
Learning Objectives
- Learn about the broad spectrum of concepts in behavioral finance, focusing on biases and heuristics.