Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time.In less than a week she discovered that the shoes were uncomfortable.Grace went back to wearing her old pair and stashed away the new pair.When asked by her boss, Mme.Ramotswe, why does she not simply give away the new pair, she said: "But I paid so much for them." Grace's behavior
A)is rational: she should not discard a valuable item.
B)ignores the fact that the purchase price is now a sunk cost and has no bearing on whether she should give them away or not.
C)supports the endowment effect which states that ownership of an item makes it more valuable.
D)is rational because the more you pay for an item the more valuable it is.

Question

Quizplus · Accepted Answer

Grace's behavior ignores the sunk cost fallacy, which refers to the tendency of people to consider the sunk costs when making decisions, even though these costs cannot be recovered. The fact that she paid a high price for the shoes should not affect her decision to give them away, as it does not change the fact that they are uncomfortable and unusable. By stashing away the new pair, she is behaving irrationally and wasting resources.

Grace Makutsi Finally Bought a Pair of Blue Shoes That