The Endowment Effect: Loss Aversion or a Buy-Sell Discrepancy?

31 Pages Posted: 3 Jun 2020 Last revised: 16 Sep 2020

See all articles by Gal Smitizsky

Gal Smitizsky

University of California, San Diego (UCSD) - Rady School of Management

Wendy Liu

University of California, San Diego (UCSD) - Rady School of Management

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management

Date Written: September 15, 2020

Abstract

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

Suggested Citation

Smitizsky, Gal and Liu, Wendy and Gneezy, Uri, The Endowment Effect: Loss Aversion or a Buy-Sell Discrepancy? (September 15, 2020). Available at SSRN: https://ssrn.com/abstract=3588012 or http://dx.doi.org/10.2139/ssrn.3588012

Gal Smitizsky (Contact Author)

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

Wendy Liu

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

HOME PAGE: http://management.ucsd.edu/faculty/directory/wendy-liu/

Uri Gneezy

University of California, San Diego (UCSD) - Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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