Paul wins a $500 watch in a sweepstakes and decides to keep it instead of selling it on eBay, even though he says he would have preferred to win $500 cash. Knowing Paul's preferences, how can we explain his decision to keep the watch?

Question

Quizplus · Accepted Answer

Each option describes a cognitive bias or economic principle that could explain why Paul decides to keep the watch despite preferring cash. A) highlights the endowment effect, where individuals value things more simply because they own them. B) and C) point out how Paul might be overlooking the opportunity costs and implicit costs associated with keeping the watch instead of converting it into cash.

Paul Wins a $500 Watch in a Sweepstakes and Decides