medium · GMAT Verbal
According to prospect theory, people evaluate outcomes relative to a reference point and weigh losses from that point more heavily than equivalent gains, a pattern called loss aversion. The endowment effect describes how simply owning an object shifts a person's reference point to include possessing it, so parting with the object registers as a loss rather than as a foregone gain. In a study, participants randomly given a mug and then offered cash to sell it demanded, on average, twice the price that a separate group who never owned a mug was willing to pay to acquire an identical one.
Which of the following can be most properly inferred from the passage?
- Every single person who owns any object will always demand at least twice its market value to give it up.
- The buyers in the study had previously owned an identical mug and had later given it up voluntarily.
- People weigh gains and losses from a reference point exactly equally under prospect theory's account.
- The sellers' higher price is consistent with their reference point shifting to include possessing the mug.
- The mugs used in this particular study cost more to manufacture than mugs typically sold in ordinary stores.
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