Molly received an autographed poster of David Hasselhoff for her 21st birthday
Her friend Helga offered her $50 for the poster, but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed. Explain this inconsistency in Molly's behavior.
The inconsistency comes from Molly's failure to take into account nonmonetary opportunity costs. By keeping the poster instead of selling it, Molly incurs an opportunity cost of $50, so there is a $50 cost involved in keeping the poster even though she did not pay $50 for the poster. Behavioral economists believe this inconsistency is caused by the endowment effect, which is the tendency of people to be unwilling to sell something they already own even if they are offered a price greater than they would be willing to pay for the item if they did not already own it.
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