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Constructing preference from experience: the endowment effect reflected in external information search.

Thorsten Pachur1, Benjamin Scheibehenne

  • 1Center for Cognitive and Decision Sciences, Department of Psychology, University of Basel, Basel, Switzerland. thorsten.pachur@unibas.ch

Journal of Experimental Psychology. Learning, Memory, and Cognition
|March 14, 2012
PubMed
Summary
This summary is machine-generated.

The endowment effect, where owners value items more, stems from how buyers and sellers search for information. Sellers stop searching after finding good outcomes, while buyers stop after finding bad ones, influencing their valuation.

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Area of Science:

  • Cognitive Psychology
  • Behavioral Economics

Background:

  • The endowment effect describes the tendency for individuals to value owned objects more than unowned ones.
  • Existing research suggests this effect is linked to differences in information search between buyers and sellers.

Purpose of the Study:

  • To investigate how differences in external search termination behavior contribute to the endowment effect.
  • To examine the role of predecisional information search in buyer-seller valuation disparities.

Main Methods:

  • A within-subject design was employed, where participants set selling and buying prices for monetary lotteries.
  • An experiential sampling condition required participants to learn lottery outcomes and probabilities through direct experience.
  • A sampling paradigm was used to analyze external search termination patterns.

Main Results:

  • Sellers were observed to terminate information search after encountering high outcomes, whereas buyers terminated after encountering low outcomes.
  • These divergent search termination strategies led to differentially distorted perceptions of the lotteries for sellers and buyers.
  • The degree of information distortion predicted the magnitude of the endowment effect.

Conclusions:

  • The findings support cognitive accounts suggesting that the endowment effect is partly driven by predecisional information search differences.
  • Search termination behavior in external search is a key mechanism underlying the endowment effect.
  • Valuation differences between buyers and sellers are influenced by how they sample and process information about an object's potential outcomes.