Mispredicting the Endowment Effect: Underestimation of Owners' Selling Prices by Buye's Agents
29 Pages Posted: 7 Feb 2002
Abstract
People tend to value objects more highly simply because they own them. Prior research indicates that people underestimate the impact of this endowment effect on both their own and other people's preferences. We show that underestimation of the endowment effect can lead to suboptimal behavior in settings with economic consequences. Subjects acting as a "buyer's agent" made suboptimally low offers for an owner's commodity. Although buyer's agents learned to make increasingly optimal (i.e., higher) offers over repeated interactions with an initial commodity, this learning did not generalize to a new commodity.
Keywords: Behavioral economics, endowment effect, experimental economics
JEL Classification: C91, D83
Suggested Citation: Suggested Citation
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