Suppose I bought some Harvard mugs valued at $10.98. I gave half of the class a mug. These are the sellers. The other half do not have any mugs. They are the buyers. Neither side knows that true value of the mugs. Now supposed I asked the sellers to name a price at which they are willing to sell the mugs. At the same I asked the buyers to name a price at which they are willing to buy the mugs. It is likely that on average:
A) The sellers will ask for a price higher than $10.98; the buyers will state a price less than $10.98. This is due to the endowment effect.
B) The buyers will state a price higher than $10.98; the sellers will ask for a price less than $10.98. This is due to the endowment effect.
C) The buying price and the selling price will be equal, since MLD students are all perfectly rational.
D) The sellers will ask for a price higher than $10.98; the buyers will state a price less than $10.98. This is due to the sellers' over-confidence.

Question

Quizplus · Accepted Answer

The endowment effect is a psychological phenomenon where people ascribe more value to things merely because they own them. In this scenario, sellers are likely to value the mugs more highly because they own them, asking for a price higher than $10.98. Conversely, buyers, not having the mugs, might not value them as highly and thus would be willing to pay less.

Suppose I Bought Some Harvard Mugs Valued at $10