Economics Endowment Effect Questions
The endowment effect is a cognitive bias that describes the tendency for individuals to value an item more highly simply because they own it. Scarcity plays a crucial role in the endowment effect as it creates a sense of perceived value and ownership over the item. When an item is scarce or limited in supply, individuals may attach greater importance to it due to the fear of losing or missing out on it. This scarcity-induced value perception leads to an inflated valuation of the item, resulting in the endowment effect.