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The endowment effect changes the shape of the indifference curves substantially [41] Similarly, another study that is focused on the Strategic Reallocations for Endowment analyses how it is the case that economics's agents welfare could potentially increase if they change their endowment holding.
Although traditional economists consider this "endowment effect", and all other effects of loss aversion, to be completely irrational, it is important to the fields of marketing and behavioral finance. Users in behavioral and experimental economics studies decided to cease participation in iterative money-making games when the threat of loss ...
The proponents of the traditional theories believe that "investors should just own the entire market rather than attempting to outperform the market". Behavioral finance has emerged as an alternative to these theories of traditional finance and the behavioral aspects of psychology and sociology are integral catalysts within this field of study ...
Status quo bias has been attributed to a combination of loss aversion and the endowment effect, two ideas relevant to prospect theory.An individual weighs the potential losses of switching from the status quo more heavily than the potential gains; this is due to the prospect theory value function being steeper in the loss domain. [1]
Reference dependence is a central principle in prospect theory and behavioral economics generally. It holds that people evaluate outcomes and express preferences relative to an existing reference point, or status quo. It is related to loss aversion and the endowment effect. [1] [2]
Confirmation bias is the tendency to search for, interpret, focus on and remember information in a way that confirms one's preconceptions. [32] There are multiple other cognitive biases which involve or are types of confirmation bias: Backfire effect, a tendency to react to disconfirming evidence by strengthening one's previous beliefs. [33]
Prospect theory is a theory of behavioral economics, judgment and decision making that was developed by Daniel Kahneman and Amos Tversky in 1979. [1] The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics .
Cumulative prospect theory has been applied to a diverse range of situations which appear inconsistent with standard economic rationality, in particular the equity premium puzzle, the asset allocation puzzle, the status quo bias, various gambling and betting puzzles, intertemporal consumption and the endowment effect.