Document Type

Honors Paper

Advisor

Ann Devlin

Publication Date

2016

Abstract

Two studies examine if people’s inability to anticipate the endowment effect is a result of failed perspective taking. The first study examined the effect of a financial incentive on people’s ability to anticipate the endowment effect, using 40 participants from psychology courses at Connecticut College. Analyses were conducted to test for egocentrism, and to determine how a financial incentive would affect people’s ability to anticipate the endowment effect. The results indicated that buyers trended toward being egocentric in that they underestimated the sellers’ average selling price (p=.073), and that a financial incentive was not effective at improving people’s ability to anticipate the endowment effect (p=.917). The second study implemented similarity and difference priming in order to help improve people’s ability to anticipate the endowment effect. This study used 81 participants from psychology courses at Connecticut College. The results indicated that the endowment effect only occurred in the control group (p=.050). Statistical tests were conducted in order to determine whether people lacked the ability to anticipate the endowment effect, and if they did, if similarity or difference priming improved their ability to anticipate the endowment effect. Analyses revealed that buyers in the control and similarity prime groups had the most difficulty anticipating the endowment effect (p=.089, p=.060, respectively), whereas sellers and those who were primed for differences tended to be the most accurate. People seem to need help remembering that other people may be different in order to overcome their inaccurate perspectives. The implications of the endowment effect, anticipating the endowment effect, and accurate perspective taking are discussed.

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The views expressed in this paper are solely those of the author.