Abstract
In behavioral economics, the “endowment effect” describes the robust finding that prices people are willing to accept (WTA) for a good exceed prices people are willing to pay (WTP) for the same good. The increase in WTA values is often explained by the sellers’ negative hedonic response to losing their item. Recent studies, however, show that subtle cues may change participants’ perspective, influencing their valuations. We hypothesized that implicit connotations of instructional language may be one of those cues. To test this hypothesis we manipulated the wording of instructions in two conditions: in the Sell condition, subjects were endowed with a set of pens and asked to select an amount of money for which they would sell the pens back and in the Take condition, subjects were endowed with the pens and asked to select an amount of money they would take for the pens. Participants in each condition also estimated the market value of the pens. Consistent with our hypothesis, WTA in the Sell condition was higher than in the Take condition, though there were no differences in market values between conditions. These findings show that instructional language does influence participant valuations. Furthermore, we suggest that those being asked to “sell” use their market estimations as the salient reference point in the transaction.
Highlights
IntroductionPrices sellers are willing to accept (WTA) for a good typically exceed prices that, as buyers, they are willing to pay (WTP) for the same good
In experimental market exchanges, prices sellers are willing to accept (WTA) for a good typically exceed prices that, as buyers, they are willing to pay (WTP) for the same good
The wording selectively affected participants’ subjective values and did not generalize to their perceptions of market values. These findings lie in contrast to the notion that endowment status is the sole factor driving the difference between WTA and WTP values [1, 2, 17]
Summary
Prices sellers are willing to accept (WTA) for a good typically exceed prices that, as buyers, they are willing to pay (WTP) for the same good. Many studies proposed loss aversion [2], or the increased weighting of losses compared to gains, as the driving force behind the increased WTA prices. These studies suggested that the pain from losing an item looms larger than the reward from acquiring the same item. Sellers will increase the price they demand for parting with their good [3,4,5,6,7]. Weaver and Frederick (2012) argued that sellers evaluate potential trades
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