Economist.com | Economics focus
Are people rational as economic theory suggests (or even as political theory suggests they should be in voting)?
This article explores just that question and offers some interesting answers:
... the “endowment effect”, one of the chief tenets of prospect theory. Put simply, this means that people place an extra value on things they already own. Think of a favourite sweater, or your house: would you swap either for something of equal market value? Over the past decade, prospect theorists have found support for the endowment effect in scores of experiments.
This means therefore that despite being able to get market value or above market value for something you own, you will prefer to keep it. Not very rational at all. however the article then goes on to look at the experiments of John List, which showed that inexpereinced 'traders' tended to exhibit the endowment effect, whereas expereince traders reacted against this and acted in a manner consistent with the classical rational hypothesis.
So experience increases your ability to be rational in an economic sense. (I wonder if a similar effect can be seen in something like voting patterns? I suspect not. ) Could this be important in terms of the marketing of products and service and in terms of predicting customer loyalty? Early adopters of new technology tend to be more technically savvy and more easily swayed by 'rational' concerns i.e. price or functionality. These aren't the same sort of things that drive a more mainstream later adopter.
I am not sure whether this can be applied in this way but if so there are some very interesting implications.
Posted by Paul Goodison at September 3, 2003 10:34 PM | TrackBack