Economic Theory Dissertation Example

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Free Economic Theory Dissertation Example

Name Instructor's Name Course DateEconomic Theory QUESTION 1 Prospect Theory involves the weighing of possible risks and individuals making inherent decisions. Additionally, a point of reference forms the basis of the definition of gains and losses made by an individual and can be set against expected levels of trade. The degree of attachment to the status quo informs the influence of inherited portfolios. There is thus edition and assessment of less risky prospects. These factors limit the volume traded similar to the experience provided by the Endowment effects, a behavioral economic trend where inherited or endowed portfolios influence investors and acts as the point of reference point they desire to return. It fits the behavior observed in the prospect theory where a portfolio’s future prospects of profitability prevail over those of the market; in determining an individual's financial decision thus acting as a cognitive illusion. An individual thus ends up quoting his price of sale for an item at an exorbitant price beyond even his or her own reach. QUESTION 2 The Endowment effect influences the flow of trade and the decisions made by different entities. In the Standard model, there is failure to factor in biases that may cause interference due to characteristics of the decision makers including selfishness and lack of concern for others, rational actions meant for maximization of personal profits based on available information and ability to forecast on the effect of various stakeholders’ choices (Macedo et al. 12). Giving up of goods is easy, and trade is reversible thus generated indifference curves do not cross. . On the other hand, endowment brings about disparity to the value given to what is in self-possession compared to that owned by others, thus introducing the biases of loss aversion (Kahneman et al. 1326). Below is a graphical example of pens and their value in dollars. There is an introduction of reference points pens (P), and...
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