Question

Pentrall Bros. is a seller of used automobiles. A research study conducted by the company indicates that customers are not willing to pay more than 70 percent of the market price of a new car for a used car. In light of this, the company makes sure that the prices of used cars are not set higher than 70 percent of the market value. In this scenario, Pentrall Bros. is trying to avoid _____.

Answer 1

The endowment effect

Step-by-step explanation:

According to the endowment effect, people are emotionally biased and tend to over value what they already own and undervalue what they haven't purchased.

They form some kind of attachment to what belongs to them and attach extra value to the item, due to the fear of losing it.

For example a person may prefer to continue using an old car rather than pay a certain amount to buy another used car.

Pentrall Bros, is trying to avoid the endowment effect by ensuring the prices of its used cars, are not higher than the prices at which customer's value them.