The endowment effect: Rose-tinted and dark-tinted glasses

Abstract

The endowment effect, predicted by prospect theory, is a robust finding in behavioral decision theory. Extending recent examinations of the underlying processes, we present evidence for differential perceptions of the traded item, with sellers focusing more on positive features and less on negative features, relative to buyers. In experiment 1, sellers and buyers access information of differing valence in a free recall task. Experiment 2 utilizes error rates and response latencies to demonstrate systematic, and differing, patterns of errors and biases in reactions to valenced stimuli. Experiment 3 utilizes contrast effects to manipulate these foci, thereby moderating the endowment effect. © 2005 by JOURNAL OF CONSUMER RESEARCH, Inc.