Explaining the Endowment Effect through Ownership: The Role of Identity, Gender, and Self-Threat

Abstract

The price people are willing to pay for a good is often less than the price they are willing to accept to give up the same good, a phenomenon called the endowment effect. Loss aversion has typically accounted for the endowment effect, but an alternative explanation suggests that ownership creates an association between the item and the self, and this possession-self link increases the value of the good. To test the ownership account, this research examines three moderators that theory suggests should affect the possession-self link and consequently the endowment effect: self-threat, identity associations of a good, and gender. After a social selfthreat, the endowment effect is strengthened for in-group goods among both men and women but is eliminated for out-group goods among men (but not women). These results are consistent with a possession-self link explanation and therefore suggest that ownership offers a better explanation for the endowment effect. T he price people are willing to pay for a particular good is often significantly less than the price they are willing to accept to give up the same good (Kahneman, Knetsch, and Thaler 1990, 1991). Many studies have shown that the valuations of a good from those randomly assigned to receive it (i.e., sellers "endowed" with the good) exceed the valuations of the good from those randomly assigned not to receive it (i.e., buyers;

The two faces of ownership: Introduction to the special section on ownership and economic decisions

“…Supporting earlier work (Dommer & Swaminathan, 2013), their results suggest a link between identity and ownership that is expressed in the valuations of goods. This contribution thus tightly links the two faces of ownership and is closely tied to the idea that psychological ownership is an expression of one's identity (e.g., Belk, 1988).…”

Explanations of the endowment effect: an integrative review

“…Once an attachment has formed, the potential loss of the good is perceived as a threat to the self [65,80]. Because selling entails a loss of the good, sellers are more affected by perceptions of threat and feelings of anxiety than buyers.…”

“…The activation of this region while imagining that someone else owns the good is not related to subsequent evaluations of that good [68]. People also exhibit a larger mere-ownership effect for goods congruent with their self-concept [92], and a larger WTP-WTA gap for goods with identity-relevant attributes such as the logo of their university [80]. Presumably, self-congruence and identity-relevance make attributes easier to encode in relation to the self and easier to remember when valuing the good.…”

We’ll Always Have Paris

“…Participants demand a higher price to part with a desirable potential experience than to part with a desirable possession. This is to be expected given recent claims that the endowment effect results in part from the fact that we tend to think of things we own as part of ourselves and we are understandably reluctant to let go of parts of ourselves (Beggan, 1992;Dommer & Swaminathan, 2012;Gawronski, Bodenhausen, & Becker, 2007;Morewedge, Shu, Gilbert, & Wilson, 2009). …”