Well, the sort of thing you are talking about here is known to behavioral economists, but it has not really gotten an agreed upon label yet. "Inertia" looks like the leading candidate, but that is hardly at the level of use or acceptance that "endowment effect" is. It is distinct from the endowment effect, however.
Essentially it is an aspect of bounded rationality. People like to continue with existing financial arrangements unless they become strongly convinced that there is a reason to change them. Lots and lots of people in the US, and this includes supposedly intelligent and well-educated people, have pension arrangements that are simply stupid. However, they have them because they were the default option at their place of employment and they simply do not wish to think about the issue. It is a "waste of their time," or a "nuisance to think about," it "makes my head ache."
This is not a matter of being attached to something that you have (like Carrol with his inherited table, or me with a baseball card I sold a decade ago to help pay for a daughter's college tuition and have regretted having done so ever since). It is a matter of not wanting to think about something complicated because, well, it is complicated. As long as my current setup or situation is not too difficult or unpleasant, I'll just go along because I don't want to think about things I don't like thinking about. And most people really don't like thinking too long and hard about financial arrangements.
I would accept that there may be some kind of connection between this "inertia" phenomenon and the endowment effect, and I also suspect that there is some connection between risk aversion and the endowment effect. But these are indeed all three distinct phenomena. Barkley Rosser ----- Original Message ----- From: "Bill Bartlett" <billbartlett at enterprize.net.au> To: <lbo-talk at lbo-talk.org> Sent: Friday, June 13, 2003 5:57 AM Subject: Re: [lbo-talk] Economics drivel
> At 2:40 PM -0400 12/6/03, Barkley Rosser wrote:
>
> > This is not an example of the endowment effect.
> >This is just plain stupidity, of which there is plenty
> >around.
>
> I fail to see why it is not not. They were "endowed" with a certain thing,
cheap rent. They had the opportunity to sacrifice that, in return for
slightly less cheap rent, with the direct personal benefits to them being
worth 4 times what they would have been giving up. They declined to trade
something they were endowed with, even for 4 times its actual value.
>
> Sounds like the same phenomenon as "endowment effect" to me. Just because
it isn't a case-study in your text books doesn't mean it isn't the same
thing.
>
> And "just plain stupidity" is not a full explanation anyhow, it may be
irrational and stupid, but the point is to understand and explain why it is
so. Categorising the behaviour helps, by allowing us to see it in context,
but the important thing is to know the reason.
>
> Bill Bartlett
> Bracknell Tas
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>