Explanations of the endowment effect: an integrative review

• Published in: Trends in cognitive sciences Vol. 19; no. 6; pp. 339 - 348
• Main Authors: Morewedge, Carey K., Giblin, Colleen E.
• Format: Journal Article
• Language: English
• Published: England Elsevier Ltd 01.06.2015
• Subjects: Animals; Biological Evolution; Cognition; confirmatory hypothesis testing; Economics, Behavioral; endowment effect; Humans; loss aversion; memory bias; mere ownership effect; Models, Psychological; Neurology; Perception; Psychiatry; Social Behavior; willingness to pay–willingness to accept gap; loss aversion; memory bias; endowment effect; willingness to pay–willingness to accept gap; confirmatory hypothesis testing; mere ownership effect
• ISSN: 1364-6613; 1879-307X; 1879-307X
• DOI: 10.1016/j.tics.2015.04.004

•The endowment effect has traditionally been attributed to loss aversion.•New evidence elucidates more basic alternative cognitive processes.•We review evolutionary, reference-price, biased processing, and ownership theories.•Memory bias due to cognitive framing effects may best account for all findings. The endowment effect is the tendency for people who own a good to value it more than people who do not. Its economic impact is consequential. It creates market inefficiencies and irregularities in valuation such as differences between buyers and sellers, reluctance to trade, and mere ownership effects. Traditionally, the endowment effect has been attributed to loss aversion causing sellers of a good to value it more than buyers. New theories and findings – some inconsistent with loss aversion – suggest evolutionary, strategic, and more basic cognitive origins. In an integrative review, we propose that all three major instantiations of the endowment effect are attributable to exogenously and endogenously induced cognitive frames that bias which information is accessible during valuation.