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The Influence of Emotions on the Endowment Effect

Author

Listed:
  • Flávia de Souza Costa Neves Cavazotte

    (Ibmec/RJ)

  • Paulo Tavares Dias Filho
  • Otacílio Torres Vilas Boas

Abstract

According to prospect theory, individuals with loss aversion would tend to attribute a higher value to a good once their ownership over it had been established. Such tendency would cause reluctance to trade the good, even if an equivalent one were offered in exchange. Thaler (1980) named this phenomenon endowment effect. In this article, we present a review of the literature about the topic, which has been one of the most investigated themes in the relatively recent field of behavioral finance. Adopting Knetsch’s research model (1989), we conducted two experiments in order to investigate the phenomenon in a Brazilian sample, specifically testing the influence of emotions on its manifestation. The results replicate findings for the endowment effect, and suggest that negative emotions attenuate the observed effects. Positive emotions, however, did not have any detectable influence over the phenomenon.

Suggested Citation

  • Flávia de Souza Costa Neves Cavazotte & Paulo Tavares Dias Filho & Otacílio Torres Vilas Boas, 2009. "The Influence of Emotions on the Endowment Effect," Brazilian Review of Finance, Brazilian Society of Finance, vol. 7(2), pages 196-213.
    • Handle: RePEc:brf:journl:v:7:y:2009:i:2:p:196-213
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    Cited by:

    1. Lane, Tom, 2017. "How does happiness relate to economic behaviour? A review of the literature," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 68(C), pages 62-78.

    More about this item

    Keywords

    behavioral nance; endowment effect; emotions.;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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