Question

Q7:Briefly describe the endowment effect and its implications in your own words.

Answer 1

Endowment effect is also known as divestiture aversion.The term endowment effect originated by Richard Thaler.It is the hypothesis that people value a thing more once it become theirs.Endowment effect can be explained by loss aversion and it is an illustration of the status quo bias.

The term is originated from the field behavioural economics.Designers use this effect to product and Web design. Therefor they can influence the user behaviour Endowment effect is the contradiction of classical economic idea that with in the economic system all peoples always behaves rationally.

Implications-

Presence of endowment effect has significant implications on low and economics. Herbert hovenkamp says that a person has no indifference curve. Endowment effect substantially changes the shape of the indifference curve.