Consumption experience, choice experience and the endowment effect.

Area of Science:

• Behavioral Economics
• Consumer Psychology

Background:

• The endowment effect, where individuals overvalue items they own, is a well-documented phenomenon.
• The role of prior consumption and choice experience in shaping the endowment effect remains less understood, particularly with unfamiliar goods.

Purpose of the Study:

• To investigate how prior tasting and choice experiences influence the endowment effect for unfamiliar consumption goods.
• To examine the conditions under which the endowment effect emerges and how experience modulates it.

Main Methods:

• Experimental design involving endowments of unfamiliar consumption goods.
• Manipulation of endowment acquisition (single vs. two installments) and trading conditions (last unit retention).
• Measurement of subjects' willingness to swap items based on prior consumption and choice experiences.

Main Results:

• No statistically significant endowment effect was observed in the baseline treatment with single-installment endowments.
• An endowment effect emerged when endowments were acquired in two installments, with some evidence that choice experience increased trading.
• Subjects showed a greater willingness to trade when they did not have to relinquish the final unit of their endowment, explaining the absence of the effect in the baseline.

Conclusions:

• The endowment effect is sensitive to the endowment acquisition process and the specific trading context.
• Prior choice experience may enhance the endowment effect, particularly when endowments are acquired incrementally.
• The reluctance to part with the final unit of an endowment can suppress the endowment effect, highlighting the importance of loss aversion in specific scenarios.