Why the sun will not set on the endowment effect: the endowment effect after loss aversion
1College of Business Administration, University of Illinois at Chicago, Chicago, IL 60607, United States.
Current Opinion in Psychology
|October 17, 2020
Summary
The endowment effect, often linked to loss aversion, may be better explained by a preference for omission over commission. This suggests new strategies for promoting behavioral change by reframing inaction as action.
Area of Science:
- Behavioral Economics
- Decision-Making Research
- Cognitive Psychology
Background:
- The endowment effect is a cornerstone of decision-making research, frequently cited as evidence for loss aversion.
- Recent scholarship challenges the traditional interpretation of the endowment effect as solely driven by loss aversion.
Purpose of the Study:
- To re-evaluate the underlying mechanisms of the endowment effect.
- To explore alternative explanations for observed endowment effect phenomena.
- To investigate the implications of these alternative explanations for behavioral interventions.
Main Methods:
- Review of existing literature on the endowment effect and loss aversion.
- Analysis of recent research proposing omission bias as an alternative explanation.
- Conceptual exploration of the implications for promoting change.
Main Results:
- Many endowment effect instances previously attributed to loss aversion are better explained by a bias favoring omission over commission.
- This omission bias suggests individuals perceive inaction (omission) differently from action (commission).
Conclusions:
- The endowment effect may not solely stem from loss aversion.
- Framing omissions as commissions and implementing sunset provisions can promote individual and institutional change.
- Understanding omission bias offers novel pathways for influencing decision-making and behavior.
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