Wednesday, April 14, 2010

Irrational Commitment

Egocentric empathy gaps between owners and buyers-  also known as the endowment effect is all about property rights and possession.  A person's willingness to pay should equal their willingness to accept compensation to be deprived of ownership. Unfortunately that doesn't seem to work with even rational people.   Simply stated the endowment effect is when you put a higher value on goods you own than the same objects you do not.

This is seen time and time again in the selling of real estate - what you are willing to accept for your (that's a big YOUR) house.  However economists (like me) believe in the logic of substitution and the beauty of indifference curves.
It is a balance sheet belief.

So is it irrational commitment?  When emotions are involved (take Love as an example) the balance sheet can be thrown out the door. 

"Can't buy me Love" ............

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