Transaction Disutility and the Endowment Effect

Ray Weaver, Harvard University, USA
Shane Frederick, Massachusetts Institute of Technology, USA
The endowment effect is typically attributed to psychological pain that owners experience over losing possessions. An alternative explanation is transaction disutility: people are reluctant to trade on disadvantageous terms. Consumers judge potential trades against market prices, and because prices exceed most consumers’ value from ownership, sellers adjust their reservation prices upward. Four studies show that reducing reference prices relieves sellers’ disutility, shrinking or eliminating the endowment effect. Very low reference prices induce transaction disutility in buyers. These results support our contention that an aversion to bad deals, not an aversion to losing possessions per se, causes the endowment effect.
[ to cite ]:
Ray Weaver and Shane Frederick (2009) ,"Transaction Disutility and the Endowment Effect", in NA - Advances in Consumer Research Volume 36, eds. Ann L. McGill and Sharon Shavitt, Duluth, MN : Association for Consumer Research, Pages: 119-122.