The Endowment Effect in Groups with and without Strategic Incentives

The realization of market transactions often depends on decisions in groups in which members are anonymous and cannot communicate, but have interrelated outcomes. In a comprehensive study, we investigated the interaction of group effects, strategic effects and endowment effects in different group situations. We show that groups display an endowment effects for uncertain goods which is reduced by about 50% compared to the endowment effect in individuals in corresponding situations. In group situations with additional strategic incentives to overprice the endowment effect completely diminished. The strategic effects and group effects on pricing in group situations cannot be found for participants’ personal valuations of the good, whereas the endowment effect for personal valuations prevailed in both group conditions. This indicates that the endowment effect might be more fundamental than group effects and strategic effects. A paramorphic model for pricing in strategic group situations is suggested and practical implications are discussed.Decision Making, Endowment Effects, Groups, Strategic Incentives

Does the Endowment Effect Justify Legal Intervention? The Debiasing Effect of Institutions

We claim that the endowment effect rarely justifies legal intervention in private ordering. We present the first theory, to our knowledge, to explain how institutions inhibit the endowment effect without altering people’s rights to their entitlements. The endowment effect is substantially caused by anticipated regret. We show that people experience regret only when they feel responsible for the decision and can mute regret by trading through institutions that let them share responsibility with others. As entitlement holders typically transact through institutions, we expect most people to make unbiased trading decisions in real markets. We test two common institutions—agency relationships and voting—that divide responsibility between multiple actors. Each caused most subjects to debias and trade in our study. We also show that people intentionally debias by employing institutions in order to share responsibility. Thus, when people can freely transact, private ordering generally overcomes the endowment effect

Does the Endowment Effect Justify Legal Intervention? The Debiasing Effect of Institutions

We claim that the endowment effect rarely justifies legal intervention in private ordering. We present the first theory, to our knowledge, to explain how institutions inhibit the endowment effect without altering people’s rights to their entitlements. The endowment effect is substantially caused by anticipated regret. We show that people experience regret only when they feel responsible for the decision and can mute regret by trading through institutions that let them share responsibility with others. As entitlement holders typically transact through institutions, we expect most people to make unbiased trading decisions in real markets. We test two common institutions—agency relationships and voting—that divide responsibility between multiple actors. Each caused most subjects to debias and trade in our study. We also show that people intentionally debias by employing institutions in order to share responsibility. Thus, when people can freely transact, private ordering generally overcomes the endowment effect

How law frames moral inuitions: the expressive effect of specific performance

According to some ethical theorists, specific performance reinforces the moral obligation that promises should be kept. Economists sometimes argue that specific performance promotes efficient contract bargaining. This Article challenges this conventional wisdom, showing that moral evaluations and the willingness to bargain are themselves strongly affected by whether specific performance is available as a default remedy or not. Our insight is based on a novel experiment that measures the decisions and motivations involving the performance, breach, and enforcement of valid legal contracts. Our findings suggest that a specific performance default triggers conflicting moral intuitions about contract breach among contracting parties: it makes the ethical norm to adhere to the contract more salient to promisees, while promisors focus on the efficiency of the breach