February 1, 2013
Blumenthal on the Endowment Effect
Jeremy Blumenthal (Syracuse) has posted Group Deliberation and the Endowment Effect: An Experimental Study (Houston Law Review) on SSRN. Here's the abstract:
“endowment effect” (EE) — the tendency to value an asset more when it is
possessed — has been empirically studied in detail at the individual
level. The prices individuals demand to sell a good they own is
significantly higher than what they offer to buy it. No published study
has examined the EE at the group level, however, despite implications
ranging from attorney-client and international negotiation, to land use
decisions, to corporate as well as legislative decisionmaking.
Accordingly, this experimental study investigated the influence of group
deliberation on individuals’ expression of the EE: Does group
deliberation attenuate or exacerbate the EE, or does it have no effect?
Further, is the EE exhibited at the group level?
Findings showed that where the EE exists for individuals, group deliberation exacerbated the individual effect; that is, post-deliberation individual judgments showed the EE even more strongly than pre-deliberation judgments. Contrast analysis confirmed that the EE grew larger after group discussion, as a result of an increased preference for retention of an initially allocated right. Further, the EE existed in groups’ judgments.
The findings have implications in at least two broad areas: decisionmaking by groups (e.g., by boards of directors) and negotiation between groups (e.g., by attorney, political, or business teams). They also raise questions and challenges about the possibility of ameliorating the EE (e.g., education and market experience). Accordingly, the study identifies, for the first time, relevant practical applications, and lays groundwork for further research.
February 1, 2013 | Permalink
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