Endowment Effect in Economics

Endowment Effect in Economics

There are various research studies conducted on the endowment effect and its influence on real time situations and all of them have come to a conclusion that at least three features of endowment effects remain open for experimental discussions. Endowment Effect in Economics is a representation to pe0ple’s attachment which they have towards the goods which they possess. Primarily Endowment effect is a hypothesis, which says that an individual will be more attached to the product he owns. There are basically three things which are noticeable in these phenomena.

 

The first is the question of whether people anticipate the occurrence of the endowment effect to which studies seem to indicate towards the negative For example in pervious articles the examples of the studies conducted on the endowment effect with the use of mugs was brought up. In that very experiment it was found by the researchers that subjects did not anticipate how much their selling prices would increase after they were given with mugs. The researchers also found that agents for buyers also underestimated how much sellers would demand.

 

The second feature of endowment effect found by researchers is that in some cases in which no endowment effect would be expected, like when goods are purchased for resale rather than for utilization. However, the boundary of commercial non-attachment has not been carefully mapped. Does an individual who has purchased a commodity for reselling reconsider the sale after getting acquainted or comprehending the more impressive values of the product. Examples of this are art dealers falling in love with some work of art, surrogate mothers changing their mind on giving away the child they've birthed.

 

The third feature is the ambiguity of the degree to which endowment effects are based solely on the current endowment, rather than past endowments or other reference points. Other reference points, such as social comparison  (i.e., the possessions and attainments of other people) and past ownership, may be used to evaluate outcomes.

 

In behavioural economics, endowment effect holds a key importance because of the relational model it provides for further implications to be heeded. Thus this makes for a very interesting field of research. Endowment effect also helps economists to further study the human mind and the concept of choices, when given. Endowment effect also helps economists to understand the relational model establishing a relationship between the goods owned by the consumer and his willingness to retain the product.

 

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