The Endowment Effect & Our Reluctance To Trade Lottery Tickets With Identical Odds

Abstract (via Michal Maimaran)

Individuals are generally reluctant to trade goods—a phenomenon identified as the endowment effect. This paper focuses on consumers’ puzzling reluctance to exchange gambles, and in particular lottery tickets with identical distribution (i.e., same odds of winning), and identifies the ticket’s vividness as an important moderator. Three studies demonstrate that individuals are more willing to exchange less vivid lottery tickets (e.g., tickets concealed in envelopes, or tickets with an unknown number) compared to more vivid tickets (e.g., tickets not concealed in envelopes, or tickets with a known number) when offered an incentive to exchange. Moreover, this effect is mediated by anticipated regret, such that less regret is anticipated when exchanging less vivid tickets, thus increasing individuals’ willingness to exchange tickets.

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28. February 2011 by Miguel Barbosa
Categories: Behavioral Economics, Curated Readings | Leave a comment

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