Behavioral Economics Lesson Three - Loss Aversion, Endowment Effects, and Default Bias
Source: Council for Economic Education (EconEdLink) | Type: Lesson
COMPELLING QUESTION Why don’t we always choose the best option when making a decision? The lesson presents three short illustrations of how people may not always make decisions by weighing the costs and benefits of the alternatives. The lesson emphasizes how reference points can influence people’s decisions. Related to this idea, behavioral economists have observed that people tend to weigh losses (relative to a reference point) more than gains (relative to a reference point) when trying to decide what to do.
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