Aspects of endowment: A query theory of value construction.

Abstract

How do people judge the monetary value of objects? One clue is provided by the typical endowment study (D. Kahneman, J. L. Knetsch, & R. H. Thaler, 1991), in which participants are randomly given either a good, such as a coffee mug, that they may later sell ("sellers") or a choice between the good and amounts of cash ("choosers"). Sellers typically demand at least twice as much as choosers, inconsistent with economic theory. This result is usually explained by an increased weighting of losses, or loss aversion. The authors provide a memory-based account of endowment, suggesting that people construct values by posing a series of queries whose order differs for sellers and choosers. Because of output interference, these queries retrieve different aspects of the object and the medium of exchange, producing different valuations. The authors show that the content and structure of the recalled aspects differ for selling and choosing and that these aspects predict valuations. Merely altering the order in which queries are posed can eliminate the endowment effect, and changing the order of queries can produce endowment-like effects without ownership.

The Role of Memory in Distinguishing Risky Decisions from Experience and Description

“…Many prominent theories of choice behavior in decisions from description contain mechanisms related to memory sampling, such as the availability heuristic (Tversky & Kahneman, 1973, 1974, the decision-by-sampling framework (Stewart et al, 2006), and query theory (Johnson et al, 2007).…”

The Endowment Effect in Groups with and without Strategic Incentives

“…For pragmatic reasons (i.e., in avoiding that persons pay for goods from their own possibly limited money), in experimental studies the price at which a person is indifferent between a certain monetary value and the good (choosing value, CV) is often used to measure endowment effects (e.g., Johnson, Häubl, & Keinan, 2007). We also measure endowment effects by comparing subjects' CV and WTA.…”

“…Endowment effects seem to exist for a variety of objects, ranging from simple consumer goods (like mugs, pens, chocolate bars; e.g., Brown, 2005;Johnson, Häubl, & Keinan, 2007;Nayakankuppam & Mishra, 2005) to objects with risky or even uncertain outcomes such as lottery tickets (e.g., Cook & Wu, 2001;Eisenberger & Weber, 1995;Harless, 1989;Inder & O'Brien, 2003;Knetsch & Sinden, 1984;Peters, Slovic, & Gregory, 2003;van de Ven, Zeelenberg, & van Dijk, 2005;van Dijk & van Knippenberg, 1996). The observed pricing pattern (i.e., higher WTA than CV than WTP) for these objects is usually the same, except for differences in magnitude (for an overview see Horowitz & McConnell, 2002).…”

“…Along a different line of thought, query theory (Johnson et al, 2007) proposes that endowment effects result from differences in memory-retrieval processes being induced by the endowment state. According to this theory, the endowment state (i.e., whether a person owns a good or not) changes the way persons think about a possible trade.…”

“…Therefore, it is not sufficient to design transaction rules that eliminate strategic incentives to overprice, but intervention needs to additionally target the endowment effect. One possibility might be to use a specific query order instruction as suggested by Johnson et al (2007; see also Glöckner et al, submitted). The influence of the endowment effect on their trading decision might be explained to the patent owners by instructing them to think thoroughly about the advantages of a transaction.…”