Mispredicting Others’ Valuations: Self-Other Difference in the Context of Endowment

Abstract

The authors argue that people systematically fail to predict how much others in the same role (i.e., owner or buyer) value an object due to self-other differences in valuation arising from intra-role empathy gaps. Across five studies in an endowment context, owners consistently underestimate the average selling price demanded by other owners, whereas buyers overestimate the average purchase price offered by other buyers by over 20%. Participants, however, make more accurate predictions of the valuation of others in the same role when either (a) an external influence (i.e., similarity priming) or (b) their high cognitive and emotional tendency to connect with others leads to a reduction in empathy gaps. Implications for theory and practice are discussed.

Keywords: social prediction, empathy gaps, endowment effect