Mispredicting the Endowment Effect: Underestimation of Owners' Selling Prices by Buye's Agents

29 Pages Posted: 7 Feb 2002

See all articles by Leaf Van Boven

Leaf Van Boven

University of Colorado Boulder

David Dunning

Cornell University

George Loewenstein

Carnegie Mellon University - Department of Social and Decision Sciences

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

Van Boven, Leaf and Dunning, David and Loewenstein, George F., Mispredicting the Endowment Effect: Underestimation of Owners' Selling Prices by Buye's Agents. Available at SSRN: https://ssrn.com/abstract=299700 or http://dx.doi.org/10.2139/ssrn.299700

Leaf Van Boven

University of Colorado Boulder ( email )

University of Colorado Boulder
Department of Psychology and Neuroscience, 345 UCB
Boulder, CO 80309
United States
303.735.5238 (Phone)
303.492.2967 (Fax)

HOME PAGE: http://psych.colorado.edu/~vanboven/

David Dunning

Cornell University ( email )

Department of Psychology
Ithaca, NY 14853
United States

George F. Loewenstein (Contact Author)

Carnegie Mellon University - Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States
412-268-8787 (Phone)
412-268-6938 (Fax)