Economics Endowment Effect Questions
Nudges can exacerbate the endowment effect in financial services by influencing individuals' decision-making processes and reinforcing their attachment to their current possessions or investments. These subtle interventions, such as default options or framing techniques, can create a sense of ownership and increase the perceived value of the existing financial products or services. As a result, individuals may be less willing to switch or explore alternative options, leading to inertia and potentially suboptimal financial decisions. Nudges can further strengthen the endowment effect by exploiting cognitive biases and heuristics, such as loss aversion or status quo bias, which make individuals more resistant to change and more likely to stick with their current choices.