Contagious endowment effects across transactions

Abstract

Purpose The endowment effect is arguably one of the most robust phenomena documented in economics, behavioral decision theory and consumer research. However, the endowment effect has traditionally been studied as a fairly static phenomenon at the transactional level of analysis. Design/methodology/approach This paper documents this “contagious” endowment effect using lab experiments and such field data as eBay transactions and discuss the managerial implication of these findings. Findings This study suggests that the endowment effect is not limited to the level of the specific object, but can manifest itself with the more abstract class of objects to which a specific object happens to belong. Research limitations/implications A logical next step would be to examine the boundary conditions – how similar does the subsequent object have to be for the endowment effect to transfer over to it? A related aspect would be whether there are boundary conditions arising from the quality of the endowment. Practical implications The effects reported here probably underlie the success of the many types of “bait and switch” schemes that have been used by the more unsavory type of marketer. As such, these findings might have implications for policy in the area of consumer protection. Originality/value This paper argues for and presents evidence consistent with the notion that the endowment effect is dynamic and can be transferred from one transaction to another and refer to this generalization of the endowment effect to other, similar products as “contagious endowment.”