Endowment Effect

There is an excellent summary article on the endowment effect -- aptly entitled "It's Mine, I Tell You" -- in this week's Economist magazine.  The article is available here.  The endowment effect holds that possession of a good, asset, or legal entitlement causes human beings to place a higher value on that good, asset, or legal entitlement than they would place on it if they did not possess it.  The article ably summarizes the recent literature on the effect, including the article in a recent issue of the William & Mary Law Review by Owen Jones and Sarah Brosnan on an evolutionary hypothesis about the endowment effect and reports on experiments on the effect among chimpanzees.  The article is available here in pdf. 

Here's the abstract of the Jones and Brosnan article: 

    Recent work at the intersection of law and behavioral biology has suggested numerous contexts in which legal thinking could benefit by integrating  knowledge  from  behavioral  biology.  In  one  of  those contexts, behavioral biology may help to provide theoretical foundation  for,  and  potentially  ncreased  predictive  power  concerning, various psychological traits relevant to law. This Article describes an experiment that explores that context. 
    The  paradoxical  psychological  bias  known  as  the  “endowment effect” puzzles economists, skews market behavior, impedes efficient exchange of goods and rights, and thereby poses important problems for  law. Although  the  effect  is known  to vary widely,  there are at present no satisfying explanations  for why  it manifests when and how it does. Drawing on evolutionary biology, this Article provides a new theory of the endowment effect. Briefly, we hypothesize that the endowment effect is an evolved propensity of humans and, further, that the degree to which an item is evolutionarily relevant will affect the strength of the endowment effect. The theory generates a novel combination of three predictions. These are: (1) the effect is likely to be  observable  in  many  other  species,  including  close  primate relatives; (2) the prevalence of the effect in other species is likely to vary across items; and (3) the prevalence of the endowment effect will increase or decrease, respectively, with the increasing or decreasing evolutionary salience of the item in question.   
    The  authors  tested  these  predictions  in  a  chimpanzee  (Pan troglodytes) experiment, recently published in Current Biology. The data,  further  explored  here,  are  consistent with  each  of  the  three predictions. Consequently, this theory may explain why the endowment effect exists in humans and other species. It may also help both to predict and to explain some of the variability in the effect when it does manifest.  And, more  broadly,  the  results  of  the  experiment suggest  that combining  life science and social science perspectives could  lead  to  a more  coherent  framework  for  understanding  the wider variety of other cognitive heuristics and biases relevant to law. 

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