The Effect of Giving It All Up on Valuation: A New Look at the Endowment Effect

In three experiments we show that the endowment effect---the tendency to demand more money for relinquishing owned goods than one is willing to pay for the same goods---fails to emerge when sellers are not fully depleted of their endowment. This finding is incompatible with prospect theory's account of the effect as stemming primarily from aversion to loss relative to the individual's current state. We suggest a new account of the endowment effect as reflecting the human aversion to “giving it all up” rather than simply an aversion to incurring any loss relative to the status quo. Experiments 1 and 2 show the effect employing a pricing paradigm. Experiment 3 examines what constitutes “all” in the giving-it-all-up effect. This paper was accepted by Uri Gneezy, behavioral economics.

[1]  John Quiggin,et al.  A test of competing explanations of compensation demanded , 1999 .

[2]  A. Tversky,et al.  Prospect theory: analysis of decision under risk , 1979 .

[3]  Ilana Ritov,et al.  Experience in Integrative Negotiations: What Needs to Be Learned? , 2007 .

[4]  J. List.  Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace , 2003 .

[5]  Robin Gregory,et al.  The role of affect in the WTA/WTP disparity , 2003 .

[6]  J. List.  Does market experience eliminate market anomalies , 2003 .

[7]  G. Loewenstein,et al.  The Effect of Ownership History on the Valuation of Objects , 1998 .

[8]  Fieke Harinck,et al.  When Gains Loom Larger Than Losses , 2007, Psychological science.

[9]  R. Thaler.  Toward a positive theory of consumer choice , 1980 .

[10]  E. Yechiam,et al.  Loss aversion, diminishing sensitivity, and the effect of experience on repeated decisions† , 2008 .

[11]  D. Ariely,et al.  Focusing on the Forgone: How Value Can Appear So Different to Buyers and Sellers , 2000 .

[12]  Yuval Rottenstreich,et al.  Multiple-Unit Holdings Yield Attenuated Endowment Effects , 2013, Manag. Sci..

[13]  Carey K. Morewedge,et al.  Bad riddance or good rubbish? Ownership and not loss aversion causes the endowment effect. , 2009 .

[14]  E. Dijk,et al.  Trading wine: On the endowment effect, loss aversion, and the comparability of consumer goods , 1998 .

[15]  Ilana Ritov,et al.  Missed Opportunity for Creating Value in Negotiations: Reluctance to Making Integrative Gambit Offers , 2005 .

[16]  Marcel Zeelenberg,et al.  Option Attachment: When Deliberating Makes Choosing Feel Like Losing. , 2003 .

[17]  A. Tversky,et al.  Loss Aversion in Riskless Choice: A Reference-Dependent Model , 1991 .

[18]  I. Ritov,et al.  Overcoming initial anchors: the effect of negotiators' dispositional control beliefs , 2010 .

[19]  Ido Erev,et al.  The rejection of attractive gambles, loss aversion, and the lemon avoidance heuristic , 2008 .

[20]  Mosi Rosenboim,et al.  Do bidders require a monetary premium for cognitive effort in an auction , 2013 .

[21]  A. Tversky,et al.  Prospect Theory : An Analysis of Decision under Risk Author ( s ) : , 2007 .

[22]  J. Busemeyer,et al.  Modeling Dynamic Inconsistency with a Changing Reference Point , 2003 .

[23]  D. Kahneman,et al.  Experimental Tests of the Endowment Effect and the Coase Theorem , 1990, Journal of Political Economy.

[24]  Colin Camerer.  Prospect Theory In The Wild: Evidence From The Field , 1998 .

[25]  G. Chapman.  Similarity and reluctance to trade , 1998 .

[26]  I. Ritov,et al.  Decision Affect Theory: Emotional Reactions to the Outcomes of Risky Options , 1997 .

[27]  Eric J. Johnson,et al.  Aspects of Endowment: A Query Theory of Value Construction , 2007, Journal of experimental psychology. Learning, memory, and cognition.

[28]  D. Kahneman,et al.  The Boundaries of Loss Aversion , 2005 .

[29]  Ray Weaver,et al.  A Reference Price Theory of the Endowment Effect , 2012 .

[30]  M. Degroot,et al.  Measuring utility by a single-response sequential method. , 1964, Behavioral science.

[31]  Deborah A. Small,et al.  Heart Strings and Purse Strings , 2004, Psychological science.

[32]  Daniel Kahneman,et al.  How Do Intentions Affect Loss Aversion? , 2005 .

[33]  Richard P. Larrick,et al.  Goals as Reference Points , 1999, Cognitive Psychology.

[34]  I. Ritov,et al.  Emotion-based choice , 1999 .

[35]  Devin G. Pope,et al.  Round Numbers as Goals , 2011, Psychological science.

[36]  Gabriele Paolacci,et al.  The Intermediate Alternative Effect: Considering a Small Tradeoff Increases Subsequent Willingness to Make Large Tradeoffs , 2011 .

[37]  I. Ritov,et al.  How beliefs influence the relative magnitude of pleasure and pain , 2009 .

[38]  Tehila Kogut,et al.  Possession attachment: Individual differences in the endowment effect , 2011 .