The endowment effect: Loss aversion or a buy-sell discrepancy?

• Published in: Journal of experimental psychology. General Vol. 150; no. 9; p. 1890
• Main Authors: Smitizsky, Gal, Liu, Wendy, Gneezy, Uri
• Format: Journal Article
• Language: English
• Published: United States 01.09.2021
• Subjects: Affect; Financial Management; Humans
• ISSN: 1939-2222
• DOI: 10.1037/xge0000880

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 aversion for the object. An alternative explanation is based on a buy-sell discrepancy, according to which people price the object in a strategic way. Disentangling these two explanations is the goal of this research. To this end, we introduce a third condition, in which participants receive an object and are asked how much they are willing to pay to keep it (Pay-to-Keep). Comparing the three conditions we find no evidence for loss aversion in the endowment effect setting. 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. (PsycInfo Database Record (c) 2021 APA, all rights reserved).