In behavioral economics, the "endowment effect" describes the tendency of individuals to value an item they own more highly than an equivalent item they do not own. To investigate its underlying mechanism, researcher Emily Vance conducted an experiment where one group was given a mug (owners) and another was given money (buyers). Vance hypothesized that if the effect is driven primarily by loss aversion—the pain of losing an item exceeding the pleasure of gaining it—then owners would value the mug much higher than buyers. However, a third group, allowed only to choose between receiving the mug or the money, valued the mug just as highly as the owners did. Which choice most logically completes the text?
- AThis finding indicates that individuals who do not own an item are unable to accurately assess its retail value.
- BThis finding demonstrates that the endowment effect can be eliminated by offering participants a choice between goods and currency.
- This finding suggests that the higher valuation of an owned item is not primarily caused by the aversion to losing it.Answer
- DThis finding reveals that buyers are more motivated by a desire to accumulate cash than to acquire new possessions.
Answer
This finding suggests that the higher valuation of an owned item is not primarily caused by the aversion to losing it.
The choice proposing that the higher valuation of an owned item is not primarily caused by the aversion to losing it is correct. If loss aversion (the pain of losing an item) were the main reason owners valued the mug more than buyers, then the group that did not own the mug (the choosers) should not have valued it as highly as the owners did. However, because the choosers valued the mug just as highly as the owners, the difference in valuation cannot be explained by loss aversion.
Step-by-Step Solution
Key Concept
Evaluating experimental evidence to draw a logical conclusion about a hypothesis.
Estimated Time:1m 30s