The Endowment Effect

question 93

Multiple Choice

The endowment effect

• A)states that we value an item more highly if we own it than if we do not own it.
• B)is the same as compartmentalizing.
• C)states that people are often willing to make themselves worse off in order to make someone else worse off.
• D)states that people are often willing to make themselves worse off in order to make someone else better off.
• E)a and d

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Definitions:

Cash Inflows

Money received by a business from its operational, investment, and financing activities.

Internal Rate

Often related to the internal rate of return (IRR), it's a metric used in financial analysis to estimate the profitability of potential investments.

Time Value

The theory that money today is more valuable than the same quantity in the future, due to its potential to accumulate additional value.

Profitability Index

A financial tool that calculates the ratio between the present value of cash inflows and the present value of initial investment, often used in capital budgeting.