The Endowment Effect: Loss Aversion or a Buy-Sell Discrepancy?
31 Pages Posted: 3 Jun 2020 Last revised: 16 Sep 2020
Date Written: September 15, 2020
In a typical endowment effect experiment, individuals state a higher Willingness-to-Accept to sell an object than a Willingness-to-Pay to obtain the object. The leading explanation for the endowment effect is loss version for the object. However, thus far, this mechanism has not been explicitly disentangled from an important strategic alternative based on a buy-sell discrepancy; doing so is the goal of this research. To this end, we introduce a Pay-to-Keep condition in which participants receive an object and are asked how much they are willing to pay to keep it. Four experiments found no evidence for loss aversion for the object in the endowment effect setting. In its absence, we found support for the buy-sell strategy mechanism. Our results have important implications for the understanding of buyer and seller behaviors, subjective value, and elicitation methods.
Keywords: endowment effect, loss aversion, buyers versus sellers, utility theory, preference elicitation
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