The Intermediate Alternative Effect: Considering a Small Tradeoff Increases Subsequent Willingness to Make Large Tradeoffs
Journal of Consumer Psychology, Vol. 21, No. 4, pp. 384-392, 2011
9 Pages Posted: 1 Nov 2010 Last revised: 3 Nov 2011
Date Written: October 2011
Prior research has consistently demonstrated that people are reluctant to trade a good they own for an alternative good, particularly when the alternative (or “target”) represents a substantial departure from the “endowment.” We demonstrate that the endowment effect can be reduced by first making participants consider trading their endowment for an intermediate alternative (which shares some characteristics of the endowment and some characteristics of the target). We find that this “intermediate alternative effect” operates primarily by shifting one's reference point in the direction of the target alternative. Even when the intermediate alternative is not adopted, the extent to which one's endowment is treated as a reference point is weakened, which can also facilitate subsequent trading.
Keywords: Endowment Effect, Loss Aversion, Decision Making, Reference Point, Prospect Theory
JEL Classification: A12, C91, M31
Suggested Citation: Suggested Citation