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

See all articles by Gabriele Paolacci

Gabriele Paolacci

Erasmus University - Rotterdam School of Management

Katherine Alicia Burson

University of Michigan, Stephen M. Ross School of Business

Scott Rick

University of Michigan, Stephen M. Ross School of Business

Date Written: October 2011

Abstract

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

Paolacci, Gabriele and Burson, Katherine Alicia and Rick, Scott, The Intermediate Alternative Effect: Considering a Small Tradeoff Increases Subsequent Willingness to Make Large Tradeoffs (October 2011). Journal of Consumer Psychology, Vol. 21, No. 4, pp. 384-392, 2011, Available at SSRN: https://ssrn.com/abstract=1700893

Gabriele Paolacci (Contact Author)

Erasmus University - Rotterdam School of Management ( email )

3000 DR Rotterdam
Netherlands

Katherine Alicia Burson

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Scott Rick

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

HOME PAGE: http://webuser.bus.umich.edu/srick/

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