Wednesday, December 28, 2011

The Endowment Effect & Indifference

Per Bylund discusses how the endowment effect can be explained using praxeological insight that sellers value goods exchanged lower than the price while buyers value it higher than the price-an insight that is lost in neoclassical mathematical economics where it is assumed that prices reflect the point where buyers and sellers are indifferent to them. That is not the only possible explanation, but it is one and it is yet another example of how the excessive faith in mathematical methods reduces our understanding of economic reality.


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