Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias
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A wine-loving economist we know purchased some nice Bordeaux wines years ago at low prices as discussed by the authors, but would neither be willing to sell the wine at the auction price nor buy an additional bottle at that price.Abstract:
A wine-loving economist we know purchased some nice Bordeaux wines years ago at low prices. The wines have greatly appreciated in value, so that a bottle that cost only $10 when purchased would now fetch $200 at auction. This economist now drinks some of this wine occasionally, but would neither be willing to sell the wine at the auction price nor buy an additional bottle at that price. Thaler (1980) called this pattern—the fact that people often demand much more to give up an object than they would be willing to pay to acquire it—the endowment effect. The example also illustrates what Samuelson and Zeckhauser (1988) call a status quo bias, a preference for the current state that biases the economist against both buying and selling his wine. These anomalies are a manifestation of an asymmetry of value that Kahneman and Tversky (1984) call loss aversion—the disutility of giving up an object is greater that the utility associated with acquiring it. This column documents the evidence supporting endowment effects and status quo biases, and discusses their relation to loss aversion.read more
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References
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Book
Choices, Values, and Frames
Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this paper, the cognitive and psychophysical determinants of choice in risky and risk- less contexts are discussed, and the relation between decision values and experience values is discussed, as well as an approach to risky choice that sketches an approach for decision making that can be seen as the acceptance of a gamble that can yield various outcomes with different probabilities.
Journal ArticleDOI
Loss Aversion in Riskless Choice: A Reference-Dependent Model
Amos Tversky,Daniel Kahneman +1 more
TL;DR: In this article, the authors present a reference-dependent theory of consumer choice, which explains such effects by a deformation of indifference curves about the reference point, in which losses and disadvantages have greater impact on preferences than gains and advantages.
Book
Using surveys to value public goods : the contingent valuation method
TL;DR: Mitchell and Carson as discussed by the authors argue that at this time the contingent valuation (CV) method offers the most promising approach for determining public willingness to pay for many public goods, an approach likely to succeed, if used carefully, where other methods may fail.
Journal ArticleDOI
Toward a positive theory of consumer choice
TL;DR: The economic theory of the consumer is a combination of positive and normative theories as discussed by the authors, which describes how consumers should choose, but it is also described how they do choose, and in certain well-defined situations many consumers act in a manner that is inconsistent with economic theory.
Journal ArticleDOI
Status quo bias in decision making
TL;DR: A series of decision-making experiments showed that individuals disproportionately stick with the status quo as mentioned in this paper, that is, doing nothing or maintaining one's current or previous decision, and that this bias is substantial in important real decisions.