Achtypi, Elena, Ashby, Nathaniel J. S., Brown, Gordon D. A., Walasek, Lukasz and Yechiam, Eldad (2021) The endowment effect and beliefs about the market. Decision, 8 (1). pp. 16-35. doi:10.1037/dec0000143 ISSN 2325-9965.

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Abstract

The endowment effect occurs when people assign a higher value to an item they own than to the same item when they do not own it, and this effect is often taken to reflect an ownership-induced change in the intrinsic value people assign to the object. However recent evidence shows that valuations made by buyers and sellers are influenced by market prices provided for the individual products, suggesting a role for beliefs about the markets. Here we elicit individuals’ beliefs about whole distributions of market prices, enabling us to quantify whether or not a given transaction constitutes a “good deal” and to demonstrate how an endowment effect may reflect such considerations. In a meta-analysis and three laboratory experiments, we show for the first time that ownership has no effect on beliefs about either: (a) the quality of the item or (b) the appropriate market price for the item. Instead, we show that sellers demand a price for the item that matches their beliefs about the item’s relative quality and the distribution of market prices in the market. Buyers, in contrast, offer less than what they believe the appropriate market price is. Thus, we argue that the endowment effect may largely reflect “adaptively rational” behavior on the part of both buyers and sellers (given their beliefs about relevant markets) rather than any ownership-induced bias or change in intrinsic preferences.

Item Type:	Journal Article
Subjects:	B Philosophy. Psychology. Religion > BF Psychology H Social Sciences > HF Commerce H Social Sciences > HG Finance H Social Sciences > HV Social pathology. Social and public welfare
Divisions:	Faculty of Science, Engineering and Medicine > Science > Psychology
Library of Congress Subject Headings (LCSH):	Endowments , Valuation , Capital market , Decision making -- Psychological aspects
Journal or Publication Title:	Decision
Publisher:	American Psychological Association
ISSN:	2325-9965
Official Date:	January 2021
Dates:	Date Event January 2021 Published 23 November 2020 Available 11 September 2020 Accepted
Volume:	8
Number:	1
Page Range:	pp. 16-35
DOI:	10.1037/dec0000143
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Open Access (Creative Commons)
Copyright Holders:	American Psychological Association
Date of first compliant deposit:	28 September 2020
Date of first compliant Open Access:	18 February 2021
RIOXX Funder/Project Grant:	Project/Grant ID RIOXX Funder Name Funder ID UNSPECIFIED University of Haifa http://dx.doi.org/10.13039/501100005717 UNSPECIFIED Home Israeli Center of Research Excellence in Algorithms http://www.icore-algo.org.il/ 207/17 Israel Science Foundation http://dx.doi.org/10.13039/501100003977 UNSPECIFIED University of Essex http://dx.doi.org/10.13039/100010046 ES/K002201/1 [ESRC] Economic and Social Research Council http://dx.doi.org/10.13039/501100000269 ES/ P008976/1 [ESRC] Economic and Social Research Council http://dx.doi.org/10.13039/501100000269 RP2012- V-022 Leverhulme Trust http://dx.doi.org/10.13039/501100000275 788826 [ERC] Horizon 2020 Framework Programme http://dx.doi.org/10.13039/100010661
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