Bad riddance or good rubbish? Ownership and not loss aversion causes the endowment effect

doi:10.1016/j.jesp.2009.05.014

Journal of Experimental Social Psychology

Volume 45, Issue 4, July 2009, Pages 947-951

https://doi.org/10.1016/j.jesp.2009.05.014 Get rights and content

Abstract

People typically demand more to relinquish the goods they own than they would be willing to pay to acquire those goods if they did not already own them (the endowment effect). The standard economic explanation of this phenomenon is that people expect the pain of relinquishing a good to be greater than the pleasure of acquiring it (the loss aversion account). The standard psychological explanation is that people are reluctant to relinquish the goods they own simply because they associate those goods with themselves and not because they expect relinquishing them to be especially painful (the ownership account). Because sellers are usually owners, loss aversion and ownership have been confounded in previous studies of the endowment effect. In two experiments that deconfounded them, ownership produced an endowment effect but loss aversion did not. In Experiment 1, buyers were willing to pay just as much for a coffee mug as sellers demanded if the buyers already happened to own an identical mug. In Experiment 2, buyers’ brokers and sellers’ brokers agreed on the price of a mug, but both brokers traded at higher prices when they happened to own mugs that were identical to the ones they were trading. In short, the endowment effect disappeared when buyers were owners and when sellers were not, suggesting that ownership and not loss aversion causes the endowment effect in the standard experimental paradigm.

Section snippets

Experiment 1: when buyers are owners

In Experiment 1, we studied sellers who owned a coffee mug (owner–sellers) and buyers who did not own a coffee mug (nonowner-buyers), as has been done in previous studies of the endowment effect. But we also studied buyers who already owned the same coffee mug (owner–buyers) (see Corrigan & Rousu, 2006). We reasoned that if loss aversion drives the endowment effect, then sellers should value the mug more than buyers do regardless of whether those buyers do or do not already own a mug. On the

Experiment 2: when sellers are not owners

The ownership account predicts that the endowment effect should disappear when buyers become owners, and this is what happened in Experiment 1. The ownership account also predicts that the endowment effect should disappear when sellers become nonowners, and that prediction was investigated in Experiment 2.

Although the idea of selling without owning may seem odd at first, it happens all the time. Buyers’ brokers and sellers’ brokers are people who trade goods they do not own. In Experiment 2, we

General discussion

The loss aversion account of the endowment effect states that the effect is due solely to the fact that sellers see transactions as powerfully aversive losses whereas buyers see them as mildly attractive gains. It explicitly denies the possibility that the effect occurs because people find the goods they own to be especially appealing. This denial is based on the fact that in previous studies when people were asked to trade a good, sellers demanded more than buyers were willing to pay, but when

Acknowledgments

We gratefully acknowledge the support of research grant # BCS-0722132 from the National Science Foundation to Daniel T. Gilbert and Timothy D. Wilson. We thank Max Bazerman, David Laibson, Sendhil Mullainathan, and Dick Thaler for helpful comments and advice.

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ReportBad riddance or good rubbish? Ownership and not loss aversion causes the endowment effect

Abstract

Section snippets

Experiment 1: when buyers are owners

Experiment 2: when sellers are not owners

General discussion

Acknowledgments

Journal of Consumer Psychology

Journal of Economic Behavior and Organization

Journal of Experimental Social Psychology

Organizational Behavior and Human Decision Processes

Journal of Economic Behavior and Organization

Journal of Economic Psychology

Journal of Economic Psychology

Journal of Consumer Psychology

A theory of reference-dependent preferences

Quarterly Journal of Economics

Measuring utility by a single response sequential method

Behavioral Science

On the social nature of nonsocial perception: The mere ownership effect

Journal of Personality and Social Psychology

Source credibility in social judgment: Bias, expertise, and the judge’s point of view

Journal of Personality and Social Psychology

Post-decision changes in desirability of alternatives

Journal of Abnormal and Social Psychology

Focusing on the foregone: How value can appear so different to buyers and sellers

Journal of Consumer Research

Similarity and reluctance to trade

Journal of Behavioral Decision Making

Cognitive dissonance. Fifty years of a classic theory

The effect of initial endowments in experimental auctions

American Journal of Agricultural Economics

Experimental tests of the endowment effect

Journal of Economic Behavior and Organization

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Bad riddance or good rubbish? Ownership and not loss aversion causes the endowment effect