Endowment Effect: Experimental Tests and Literature Study
DOI:
https://doi.org/10.54691/bcpbm.v35i.3246Keywords:
Endowment effect; Coase theorem; Theories of behavior.Abstract
In everyday economic life, the endowment effect is a very frequent occurrence. It describes the phenomena wherein a person values a possession more highly when they own it than when they do not. At present, the psychological mechanism of this phenomenon is mainly explained by loss aversion, but this theory has great defects. A theoretical area of behavioral finance is endowment effect. In order to analyze the psychological traits of financial market subjects (decision-makers) in financial market behavior and to study investor decision-making behavior and its effects on asset pricing, the field of behavioral finance is founded on theories of behavior, finance, sociology, economics, decision-making, and psychology. It questions conventional economics. The endowment effect contradicts the rational person hypothesis of conventional economics and accurately represents the research techniques of behavioral finance. Future research can combine psychology and economics to further explore the psychological mechanism of this phenomenon. Combined with the influence of endowment on Coase theorem, explore the practical significance of endowment effect.
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