Asked by Kathryn Turner on Jun 19, 2024
Verified
What is the best definition of endowment effect?
A) The tendency to focus on avoiding short-term losses, even at the expense of long-term gains.
B) The tendency to avoid making a decision because you fear that the decision would have been less than optimal.
C) The tendency to consider something that you own to be worth more than it would be if you did not own it.
D) Confusion between real buying power and nominal buying power.
E) The reliance on instinct instead of analysis in making decisions.
Real Buying Power
The quantity of goods and services that can be purchased with a given amount of money, adjusting for inflation.
Short-Term Losses
Financial losses incurred over a short period of time, typically within a fiscal year, often used to offset taxes on gains.
- Become familiar with diverse notions in behavioral finance, including biases and heuristics.
Verified Answer
AS
Alisson SimiyuJun 22, 2024
Final Answer :
C
Explanation :
The endowment effect is a cognitive bias that causes people to value an owned object higher than its objective market value, simply because they own it. This effect explains why individuals often demand more to give up an object than they would be willing to pay to acquire it if they did not own it.
Learning Objectives
- Become familiar with diverse notions in behavioral finance, including biases and heuristics.