Ownership, Learning, and Beliefs

46 Pages Posted: 17 Oct 2019

See all articles by Samuel M. Hartzmark

Samuel M. Hartzmark

University of Chicago - Booth School of Business

Samuel Hirshman

University of Chicago - Booth School of Business

Alex Imas

Carnegie Mellon University - Department of Social and Decision Sciences

Date Written: October 6, 2019

Abstract

We examine how owning a good affects learning and beliefs about its quality. In a series of studies, we show that after receiving a positive or negative signal about a good, ownership causes more optimistic or pessimistic beliefs, respectively, compared to receiving the same signal about a good that is not owned. This effect on beliefs impacts the valuation gap between owners and non-owners (i.e. the endowment effect), which we show to increase with positive signals and disappear with negative signals. Moreover, we demonstrate that people overreact to signals about goods that they own relative to normative benchmarks, but learning is close to Bayesian for goods that are not owned. In exploring the mechanism for this effect, we find that ownership increases attention to recent signals about owned goods, exacerbating over-extrapolation. We demonstrate a similar relationship between ownership and over-extrapolation in survey data about stock market expectations. Our findings provide a micro-foundation for models of disagreement that generate volume in asset markets and have implications for any setting with trade and scope for learning.

Keywords: biased beliefs, endowment effect, ownership, attention, behavioral economics, learning, extrapolation

JEL Classification: D9, D12, C93

Suggested Citation

Hartzmark, Samuel M. and Hirshman, Samuel and Imas, Alex, Ownership, Learning, and Beliefs (October 6, 2019). Available at SSRN: https://ssrn.com/abstract=3465246 or http://dx.doi.org/10.2139/ssrn.3465246

Samuel M. Hartzmark (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Samuel Hirshman

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Alex Imas

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

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