How natural endowment acquire value? Explain with an example
Answers
Ownership: Studies have repeatedly shown that people will value something that they already own more than a similar item they do not own, much in line with the adage:
Example
"A bird in the hand is worth two in the bush." It does not matter if the object in question was purchased or received as a gift; the effect still holds.
Answer:
In psychology and behavioral economics, the endowment effect (also known as divestiture aversion and related to the mere ownership effect in social psychology[1]) is the finding that people are more likely to retain an object they own than acquire that same object when they do not own it.[2][3][4][5] The endowment theory can be defined as "an application of prospect theory positing that loss aversion associated with ownership explains observed exchange asymmetries."[6]
This is typically illustrated in two ways.[3] In a valuation paradigm, people's maximum willingness to pay (WTP) to acquire an object is typically lower than the least amount they are willing to accept (WTA) to give up that same object when they own it—even when there is no cause for attachment, or even if the item was only obtained minutes ago.[5] In an exchange paradigm, people given a good are reluctant to trade it for another good of similar value. For example, participants first given a Swiss chocolate bar were generally unwilling to trade it for a coffee mug, whereas participants first given the coffee mug were generally unwilling to trade it for the chocolate bar.[7]
Explanation: