Experimental Investigation of the Subjective Value of Information in Trading

Journal of the Association for Information Systems, Vol. 4, No. 5, pp. 119-139, 2003

21 Pages Posted: 24 Jul 2007

See all articles by Sheizaf Rafaeli

Sheizaf Rafaeli

University of Haifa - Graduate School of Business

Daphne Ruth Raban

School of Business Administration

Abstract

Subjective judgments regarding information are important for the design of information systems. This study examines the endowment effect in the context of evaluating information. Theoretically, value judgments that affect the demand for information are influenced by ownership rights, a phenomenon known as the endowment effect in trading situations. In a simple computer simulated business game, 31 participants conducted a management task in which they were provided opportunities to buy or sell information. The bidding mechanism was incentive compatible. Results show that, in agreement with endowment effect theory, people value information they own much more than information they do not own. This portends undertrading in information. Therefore, the subjective value of information should be considered in the design of systems. Our findings indicate a place for the subjective value of information on the WTA/WTP ratio continuum that emerges from pertinent literature. The ratio for information is similar to that of market goods. Participants had a strong inclination to purchase but not to sell information even though the profit data suggests that the use of information had no objective benefit. This preference is attributed to risk aversion rather than to loss aversion, which is the most widely accepted explanation of the endowment effect. The subjective value of information can, therefore, be affected by system design.

Keywords: Information economics, perceived value, ownership, endowment effect

Suggested Citation

Rafaeli, Sheizaf and Raban, Daphne Ruth, Experimental Investigation of the Subjective Value of Information in Trading. Journal of the Association for Information Systems, Vol. 4, No. 5, pp. 119-139, 2003, Available at SSRN: https://ssrn.com/abstract=999989

Sheizaf Rafaeli

University of Haifa - Graduate School of Business ( email )

Haifa 31905
Israel

Daphne Ruth Raban (Contact Author)

School of Business Administration ( email )

610 Jacobs Bldg
University of Haifa
Haifa, 3498838
Israel

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
133
Abstract Views
1,259
rank
310,430
PlumX Metrics