When a person places additional value on a good simply because she owns it, this is evidence of

Question

BlackTom AI · Accepted Answer

The endowment effect occurs when ownership raises an individual's valuation of a good, so this choice is correct.

1) Relevant knowledge points and concepts
- Endowment effect: owners demand more to give up an object than non-owners are willing to pay to acquire it.
- Loss aversion (Prospect Theory): losses loom larger than equivalent gains, which helps explain why giving up an owned good feels like a loss.
- Willingness to pay (WTP) vs. willingness to accept (WTA): WTA tends to exceed WTP when the endowment effect is present.
- Classic empirical evidence: Kahneman, Knetsch, and Thaler’s mug experiments show marked differences between WTA and WTP.

2) Step-by-step reasoning
- Step 1: Person acquires ownership of a good (even briefly).
- Step 2: Psychological attachment and loss aversion make giving the good up feel like a loss.
- Step 3: To part with the good, the owner demands a higher compensation (WTA) than a buyer would pay (WTP).
- Step 4: Observing this systematic increase in valuation due to ownership is precisely the endowment effect.

3) Calculational illustration (intermediate steps)
- Suppose a non-owner’s WTP for a mug = $5.
- After owning the mug, the owner’s WTA might be $15.
- The $10 gap (WTA − WTP) quantifies the endowment effect; ownership increased perceived value.

4) Why the correct answer is correct
- The question describes "placing additional value on a good simply because she owns it." That is the textbook definition of the endowment effect, driven by loss aversion and reflected in WTA > WTP.

5) Why the other options are incorrect
- Time-inconsistent preferences: relate to dynamic choices and present bias (e.g., hyperbolic discounting), not ownership-based valuation.
- Path dependence: outcomes depend on historical sequence of events or decisions, not immediate valuation change from ownership.
- Network externality: a good’s value increases with the number of users (e.g., social networks), not because an individual personally owns it.

6) Conclusion
The described behavior matches the endowment effect; therefore the correct answer is “the endowment effect,” which agrees with the provided answer.

When a person places additional value on a good simply because she owns it, this is evidence of Single choice

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