Endowment Effect, Behavioural, and Standard Economics Theories Essay

Endowment Effect, Behavioural, and Standard Economics Theories - Essay Example Regardless of the participants’ immense experience in the real world market, he found out that the willingness to accept the mugs was nearly three times higher than the willingness to pay. This is an indication that even experienced negotiators are also susceptible to the endowment effect (Angeletos, Repetto, Tobacman, and Weinberg, 2001; p. 57). The result of these two experiments is similar indicating that the human brain makes a decision almost in a similar way and on the other hand, it is apparent to note that persons under the same environmental conditions often operate under the same constraints (List, 2004; p. 617). It should also be noted that the same constraints affect even those who have experience in certain fields. The endowment effect can be analysed using neoclassical or standard economics that is strongly built on the assumptions that ever turned to well established facts (Babcock et al. 1994; pg. 928). The most vital and preferred assumption is that all econom ic agents that include consumers, suppliers, and companies among others are fully rational and their visible hand works create market efficiency (Knetsch and Wong, 2009; p. 410). Rational economists often consider these assumptions a basic, logical, and self-evident; hence, they do not require any empirical scrutiny (Babcock and Loewenstein, 1997; p. 110). Materialism has also been identified as one of the forces behind endowment effect. Some people believe that the material they own is a central occupation that provides them with success and happiness. Using materialism to determine the existence of endowment effect, 317 first year students at Katholieke University Leuven, Belgium were subjected to a study. The survey provided a...This paper discusses the endowment effect, which can be analysed using neoclassical or standard economics that is strongly built on the assumptions that ever turned to established facts Materialism has also been identified as one of forces behind endowmen t effect. Analysing endowment effect through experimental evidence often leads to the behavioural economics that targets the analysis of new variables that are often ignored by the standard economics Endowment effect largely depends on behavioural decision making that analyses how people often make certain decisions. Behavioural decision-making is a vital field that is used by different other fields including psychology, political science, management, and economics among other Endowment effect is an essential element in economics since it causes conflict between the actual behaviour and macroeconomic theory that says that value of an object should be independent of the ownership The core behavioural economics depict realism of the psychological economic analysis that aims at improving the economics on its own terms including generating better phenomena predictions, generating theoretical insights, and suggesting better policies At the same time behavioural economics does not disregard neoclassical approach to the understanding and analysis of economics and neither does it reject utility maximization, efficiency, and equilibrium The understanding of standard economics is purely pegged on the understanding of behavioural economics without concentrating on the psychology of such concepts. In regards to human behaviour, standard economics model assumes that the actions of people are fully pegged on their full information on the action in question