Mispredicting the Endowment Effect: Underestimation of Owners’ Selling Prices by Buyer’s Agents
Journal of Economic Behavior and Organization, Vol. 51, pp. 351-365, 2003
15 Pages Posted: 18 Feb 2010
Date Written: 2003
Abstract
People tend to value objects more simply because they own them. Prior research indicates that people underestimate the impact of this endowment effect on both their own and other people’s preferences.We show that underestimating the endowment effect and hence owners’ selling prices can lead to suboptimal behavior in settings with economic consequences. Subjects acting as “buyer’s agents” made suboptimally lowoffers for an owner’s commodity. Although buyer’s agents learned to make increasingly optimal (i.e., higher) offers over repeated interactions with an initial commodity, this learning did not generalize to interactions with a new commodity.
Keywords: Behavioral economic, Endowment effect, Experimental economics
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