Predicting Variation in Endowment Effect Magnitudes

Evolution and Human Behavior, Volume 41, Issue 3, May 2020, Pages 253-259

33 Pages Posted: 23 Jun 2020

See all articles by Christopher Brett Jaeger

Christopher Brett Jaeger

New York University School of Law

Sarah F. Brosnan

Georgia State University

Daniel Levin

Vanderbilt University - Psychology and Human Development

Owen D. Jones

Vanderbilt University - Law School & Dept. of Biological Sciences

Date Written: September 1, 2019

Abstract

Hundreds of studies demonstrate human cognitive biases that are both inconsistent with “rational” decisionmaking and puzzlingly patterned. One such bias, the “endowment effect” (also known as “reluctance to trade”), occurs when people instantly value an item they have just acquired at a much higher price than the maximum they would have paid to acquire it. This bias impedes a vast range of real-world transactions, making it important to understand. Prior studies have documented items that do or do not generate endowment effects, and have noted that the effects vary in magnitude. But none has predicted any of the substantial between-item variation in those magnitudes across a large and novel set of items. Working from evolutionary theory, we derived six factors that predicted 52% of the between-item variation in magnitudes for a novel set of 24 items. These results deepen understanding of both the causes of and patterns in endowment effects. More broadly, they suggest that many other cognitive biases may be similarly approached, and potentially linked by a common theoretical framework.

Keywords: behavioral economics, behavioral law and economics, cognitive heuristics, biases, endowment effect, uncertainty, risky decision-making, willingness to pay, framing effect, reference dependence, prospect theory, loss aversion, neuroscience, evolution, cognitive neuroscience, psychology

JEL Classification: K00, D80, D81, K11, B25, D12, D90

Suggested Citation

Jaeger, Christopher Brett and Brosnan, Sarah F. and Levin, Daniel and Jones, Owen D., Predicting Variation in Endowment Effect Magnitudes (September 1, 2019). Evolution and Human Behavior, Volume 41, Issue 3, May 2020, Pages 253-259, Available at SSRN: https://ssrn.com/abstract=3626163

Christopher Brett Jaeger

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
(212)-998-6246 (Phone)

Sarah F. Brosnan

Georgia State University ( email )

Atlanta, GA 30303
United States
4044136301 (Phone)

HOME PAGE: http://www2.gsu.edu/~wwwcbs/

Daniel Levin

Vanderbilt University - Psychology and Human Development ( email )

230 Appleton Place
Nashville, TN 37203
United States

Owen D. Jones (Contact Author)

Vanderbilt University - Law School & Dept. of Biological Sciences ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

HOME PAGE: http://law.vanderbilt.edu/bio/owen-jones

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