Week 6

This week we have been focusing on endowment effect and my group was chosen to read the paper Neoclassical Theory Versus Prospect Theory: Evidence From the Market Place by List. This paper was quite easy to understand and not that difficult to read. At first I did not fully understand the neoclassical theory but then after the discussion with the group and help from the group members, I understood it. Neoclassical theory is to maximise the utility, making rational choice and act on all information. So far what we have been doing in class, every readings for the lecture links with each other. For example on most all the papers that I have read during this module, it has some linkage to prospect theory. Such as the paper mentioned, neoclassical theory and prospect theory were the main theories in the paper. With endowment effect, I can understand that people put a higher value to the things they earn and I somehow agree with it. I do think people put higher value on the tings they earn because as for myself I think I value my belongings higher.

In List's paper it mentioned that with less experienced dealer, prospect theory was found to have a stronger predictive power than for the experienced dealer. To predict the experienced dealer it was found that using the neoclassical theory was stronger. I can see that this makes sense because with inexperienced dealer they care more about gain and loss and losses weight heavier than gain. When loss is weight more than gain, it will be easier to predict with the inexperienced dealer because then we can focus more on the loss and predict what their outcome will be. With the experienced dealer, neoclassical theory predicted better because with neoclassical theory, the main point is to think rational in order to maximise the utility using all the information. In my own opinion experienced dealer will probably look at all the information provided and try to think how they can maximise their utility not only thinking about the loss and not putting a lot of weight on loss.

After discussing with the whole class, we then discussed about the Wiki project that is due in for Friday and it went good. We separated different tasks and everyone agreed on the task assigned. I thought it went well because everyone cooperated and there were no arguments about what who should do what. Our goal is to get it done before Friday and hopefully we can have it all done on time. We also discussed about the second wiki that we have to do for the rest of the semester which also went very well because everyone agreed on the same topics and I think we will again cooperate well on the next project.