Science & Nature: 10 More Common Faults in Human Thought. Part 4 of 5.
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The Endowment Effect is the idea that people will require more to give up an object than they would pay to acquire it. It is based on the hypothesis that people place a high value on their property. Certainly, this is not always an error; for example, many objects have sentimental value or are “priceless” to people, however, if I buy a coffee mug today for one dollar, and tomorrow demand two dollars for it, I have no rationality for asking for the higher price. This happens frequently when people sell their cars and ask more than the book value of the vehicle, and nobody wants to pay the price.
Interesting Fact: this bias is linked to two theories; “loss aversion” says that people prefer to avoid losses rather than obtain gains, and “status quo” bias says that people hate change and will avoid it unless the incentive to change is significant.
A Self-Serving Bias occurs when an individual attributes positive outcomes to internal factors and negative outcomes to external factors. A good example of this is grades, when I get a good grade on a test; I attribute it to my intelligence, or good study habits. When I get a bad grade, I attribute it to a bad professor, or poorly written exam. This is very common as people regularly take credit for successes but refuse to accept responsibility for failures.
Interesting Fact: when considering the outcomes of others, we attribute causes exactly the opposite as we do to ourselves. When we learn that the person who sits next to us failed the exam, we attribute it to an internal cause: that person is stupid or lazy. Likewise, if they aced the exam, they got lucky, or the professor likes them more. This is known as the Fundamental Attribution Error.
TO BE CONTINUED ...
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