Say that 90 percent of the people in a market demonstrate the endowment effect and 10 percent are “rational.” Say that, initially, all people have equal wealth.

a. How would you expect the wealth distribution to change over time?

b. Would you expect the traditional model’s predictions, which are based on the assumption of rationality, to be correct? Why?

c. How might you determine the percentage of “rational”

people needed for the standard model to give accurate aggregate predictions?