Who is really loosing out?

The whole endownment theory is based around the fact that there are two different ways in which we could value an object. The first one, is on how much we are willing to pay for that object (WTP) and the second how much we are willing to sell it for or accept the loss of it (WTA). It is easy to see why, when we own something for a long time, we would value it higher. Usually, we put emotional attachment to things and would not want to depart from something that means something to us. However, the findings from studies show that WTP is still less than WTA when the item has been recently given to us. It does make sense as it follows from the loss aversion theory that we are not keen on giving things up. At this point something flashed up at me that I hope someone can answer or explain: buying and selling is simply an exchange of money for an item or service, so when we sell we lose the item but when we buy we lose the money. I guess my question is, if we are given £5 to buy something, wouldn't the giving up the £5 note away seem as a loss to us and therefore make us want to value it higher, i.e. Is there not two cases of endownment in each transaction rather than just one? If so how can this be proven?????

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Risky Decisions

I am about to write my blog post for week 4 which incorporates both parts of judgement and decision making under risk and uncertainty. I write this entry now as personal reasons have made me absent from weeks 4 and 5. So I have catching up to do, I will also discuss framing as it is the topic for week 5:

Decision making under risk and uncertainty is an area which fascinates me. I have even chosen it as my dissertation topic for this year. Part of my interest is due to the way in which people have responded to the problem questions and how they show our day to day decisions to be based on things other than rationality. It should come as no surprise that expected value theory has come under such criticism; it is after all a rather simple theory and it assumes we all place the same value to things. But, even if you were to look at things subjectively, like expected utility theory does, the choices we make don't seem to reflect those predicted by the theory. We seem to be risk averse when out comes are gains and the other way round when outcomes are loses. Furthermore the Allais paradox shows, along with other research which shows that people don't follow the axioms suggested by expected utility theory, that this is not a plausible theory.

If I am going to be honest prospect theory seemed to me a simple evolution of expected utility theory that tried to describe our pattern of decision making rather than explaining it. There are two things about this theory which I did like and thought useful. One is the weighing function and the other was framing. I suppose that framing was the most interesting part when reading through the literature. The implications extend from marketing to politics to professional decision making. I found fascinating that someone can change their mind on a decision simply because a problem has been worded differently. Knowing how to frame properly can lead to making people choose the option that you want.


I found the neuroscience section of this topic was interesting but not something which I wanted to pursue in more detail; far too biological for my liking. Support theory, however, I did like. To me it seems to have more face value and explain our decision making patterns in a way that seemed to make sense. We must automatically asses our chances and take the course of action that seems logical and in some primitive cases life saving. It also seems more useful as throughout our day to day life we do not come across certain probabilities so we asses our own.

And finally, priority theory seemed to me like a mathematical equation and not much like a person would actually think. However I could be proven wrong. If you place this equation to previous problems in other studies then most of the time it works. Maybe the reason I am displeased with it is because I am (like the judges we have discussed in previous sessions) uncomfortable with the idea that mathematical equations could be so predicting of our behaviour.