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Testing the Endowment effect: Willingness to tradeScience project video

Abstract

The endowment affect is a cognitive phenomenon where it is observed that people will often value an item more if they have ownership of it. In this experiment, the participants of one group will own a possession. In the other group, participants will be given a possession to trade with; however, they will not own the possession. How will the two groups react in a trading situation?

Objective

Collect data by recording trading behavior of participants. Organize the data in a data table. Analyze data for existence of the endowment effect.

Scientific Terms

Endowment effect

Background

The endowment effect, also known as "status quo bias", was developed by economist Richard Thaler. The theory states that a person will value a particular possession more if he or she owns it. The owner of the possession will do more to avoid losing the possession than he or she would to gain it. This theory also suggests that the owner of a possession will attribute a higher value to the possession than an equivalent possession that they do not own. The endowment effect has been extensively studied as it relates to economic theory. It helps explain concepts, such as why human beings behave irrationally in situations of "sunk costs".

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