The Role of Anticipated Regret in the Endowment Effect

EXTENDED ABSTRACT - Numerous studies have demonstrated that people persistently demand more money to give up one object than they’re willing to pay to purchase the same object (e.g. Kahnman, Knetsch, and Thaler 1990; Knetsch 1989). This violation of economic norms, commonly known as the endowment effect, is generally explained by loss aversion, the fact that pain from loss exceeds the happiness from acquisition. However, existing literature devoted little attention to the emotional experience individuals have in determining an acceptable price for purchasing or selling an item. This research sets to explore the role of anticipated feelings of regret in creating the persistent disparity between individuals’ willingness to pay (WTP) and willingness to accept (WTA). We propose that people anticipate intense regret if their decisions to buy or sell later turn out bad, and therefore set extreme threshold to both buying and selling to avoid possible regret.

Citation:

Ying Zhang and Ayelet Fishbach (2005) ,"The Role of Anticipated Regret in the Endowment Effect", in NA - Advances in Consumer Research Volume 32, eds. Geeta Menon and Akshay R. Rao, Duluth, MN : Association for Consumer Research, Pages: 66-66.