2. The Endowment Effect

Question 1

Who wrote the essay “The Life You Save May Be Your Own”?

Answer 1

Economist Thomas Shelling, an early contributor to the field of behavioral economics

Question 2

What is the difference between a statistical life and an identified life?

Answer 2

We will never let an identified life be extinguished solely based on the lack of money, but we have no problem with several statistical lives being lost.

And identified life would be an example of a little girl who we know might die, as opposed to all the potential lives (statistical) that might be lost without funding for a hospital.

Question 3

Opportunity cost

Answer 3

What you give up by deciding to do something.

The opportunity cost of an activity is what you give up by doing that activity

Question 4

Framing

Answer 4

The way in which options are presented, resulting a preference for one thing when in fact it is equal to the other.

For example, if you tell people they will be charged a surcharge for using their credit card they are more reluctant to buy something with their card, then if you tell them they will get a discount if they use cash.

Question 5

Endowment effect

Answer 5

The tendency for people to value things they already own (that are part of their endowment) more highly than things that could be part of their endowment (that they could own but do not yet)