Centuries of economic theory have been based on one simple premise: when given a choice between two items, people make the rational decision and select the one they value more. But as with many simple premises, this one has a flaw in that it is demonstrably untrue.
The fields of psychology and behavioral economics have experimentally identified a laundry list of common biases that cause people to act against their own apparent interests. One of these biases the mere fact of possessing something raises its value to its owner is known as the "endowment effect."
A new interdisciplinary study from the University of Pennsylvania has delved into whether this bias is truly universal, and whether it might have been present in humanity's evolutionary past.
The study was led by Coren Apicella, an assistant professor in Penn's School of Arts and Sciences' Department of Psychology, and Eduardo Azevedo, an assistant professor in Wharton's Department of Business Economics and Public Policy. They collaborated with Yale's Nicholas Christakis and the University of California, San Diego's James Fowler.
It will be published in the Common Bias Known as the 'Endowment Effect' Not Present in Hunter-Gatherer SocietiesCommon Bias Known as the 'Endowment Effect' Not Present in Hunter-Gatherer Societies.
A classic endowment effect experiments involves giving participants one of two items, such as a chocolate bar and a mug, and then asking whether they would like to trade for the other. As the starting item is selected at random, there should be a 50 percent chance that participants initially receive the item they like best and thus a 50 percent chance that they will trade.
"What we see, however, is that people trade only about 10 percent of the time," Azevedo said. "Simply telling someone they own something makes them value it more. That is, the way you ask the question changes what item people prefer, unlike what you woul
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University of Pennsylvania