Vision IQ

Discovery of the Endowment Effect The concept of the Endowment Effect was first identified and described by psychologist Richard Thaler in 1980. Thaler observed that people would demand much more to give up an object they owned than they would be willing to pay to acquire the same object if they did not already own it. This insight was pivotal in the development of behavioural economics, challenging the traditional economic theory that assumes people always act rationally to maximise their utility. Definition of the Endowment Effect The Endowment Effect is a cognitive bias where individuals ascribe more value to objects, goods, or items simply because they own them. This phenomenon leads people to overvalue their possessions compared to their objective market value or how they might value the same items if they did not own them. Critical Characteristics and Contributing Factors Following are some critical characteristics of the Endowment Effect and contributing factors:   Ownership...

Discovery of Ambiguity Aversion The concept of ambiguity aversion was first formally identified by economist Daniel Ellsberg in his seminal 1961 paper, famously known as the "Ellsberg Paradox." Through a series of thought experiments, Ellsberg demonstrated that people prefer to bet on outcomes with known probabilities rather than on outcomes where the probabilities are unknown, even when the expected returns are identical. His experiments involved scenarios where participants had to choose between betting on the outcome of draws from urns with known and unknown distributions of coloured balls, revealing a systematic preference for quantifiable risks over ambiguous ones. Definition of Ambiguity Aversion Ambiguity aversion refers to our inclination to shy away from choices with unclear or uncertain outcomes. We tend to favour options where the potential consequences are well-defined and understood. Ambiguity aversion, a concept primarily rooted in behavioural...