Harvey Miller owns a baseball that was hit for a home run by Ted Williams. Harvey, a long-time Boston Red Sox fan, recently refused to sell his baseball for $75,000 even though he would not have paid someone more than $10,000 for the baseball if he did not already own it. Harvey explained his decision not to sell the baseball by noting that: "Ted Williams was my hero. This baseball has a great deal of sentimental value for me." Which of the following can explain Harvey's behavior?

A) Harvey is unrealistic about his future behavior

B) Harvey fails to ignore sunk costs

C) Harvey is affected by the endowment effect

D) Harvey is behaving like a rational consumer

The correct answer is C. Harvey is affected by the endowment effect

Explanation:

The "endowment effect" occurs as individuals believe an object or product has a higher price it really does just because they own it. This is attributed to the feelings and emotions of the individual towards the object. Because of this, in the endowment effect individuals reject to sell or discard the object or want people to pay a high price for it; but, if they did not have the object they would not pay much money or would not even try to buy.

This effect explains Havery's behavior because he values the baseball just because he owns it and due to this, he also expects a lot of money for it, but if he did not own the baseball he would pay just a little amount of the money he expects, which means Harvey attributes a great value to the object just because he owns it.