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Endowment Effect in negotiations: group versus individual decision-making

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  • Amira Galin

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    Abstract

    The study’s two aims are: (a) to investigate whether groups, as compared to individuals, show a different degree of Endowment Effect (EE) during the negotiating of intangible assets, such as leisure time and (b) to gain some insight into the underlying mechanism behind groups’ decision-making processes. A total of 138 graduate students were randomly assigned to 35 groups of 3 members each; and 33 were randomly labeled as “individuals.” The study simulated two scenarios in which the students, both individuals and groups, had to decide what their demands from the university authorities were—once as “sellers” and another time as “buyers” in regard to their own leisure time. The findings indicate the presence of an Endowment Effect (EE) in both individuals and groups. However, groups significantly amplified the Endowment Effect in comparison to individuals. The mechanism which best explains why groups tend to amplify negotiating decisions was found to be the “Majority Rule,” but the “leader” also influences such amplification. Copyright Springer Science+Business Media New York 2013

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    File URL: http://hdl.handle.net/10.1007/s11238-012-9350-3
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    Bibliographic Info

    Article provided by Springer in its journal Theory and Decision.

    Volume (Year): 75 (2013)
    Issue (Month): 3 (September)
    Pages: 389-401

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    Handle: RePEc:kap:theord:v:75:y:2013:i:3:p:389-401

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    Web page: http://www.springerlink.com/link.asp?id=100341

    Related research

    Keywords: Endowment Effect; Negotiations; Groups; Polarization; Majority Rule;

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    1. Kugler, Tamar & Bornstein, Gary & Kocher, Martin G. & Sutter, Matthias, 2007. "Trust between individuals and groups: Groups are less trusting than individuals but just as trustworthy," Munich Reprints in Economics 18202, University of Munich, Department of Economics.
    2. Luhan, W.J. & Kocher, Martin G. & Sutter, Matthias, 2009. "Group polarization in the team dictator game reconsidered," Munich Reprints in Economics 18216, University of Munich, Department of Economics.
    3. Van Boven, Leaf & Loewenstein, George & Dunning, David, 2003. "Mispredicting the endowment effect:: Underestimation of owners' selling prices by buyer's agents," Journal of Economic Behavior & Organization, Elsevier, vol. 51(3), pages 351-365, July.
    4. Hoorens, Vera & Remmers, Nicole & van de Riet, Kamieke, 1999. "Time is an amazingly variable amount of money: Endowment and ownership effects in the subjective value of working time," Journal of Economic Psychology, Elsevier, vol. 20(4), pages 383-405, August.
    5. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-84, December.
    6. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December.
    7. Gary Bornstein & Ilan Yaniv, 1998. "Individual and Group Behavior in the Ultimatum Game: Are Groups More “Rational†Players?," Experimental Economics, Springer, vol. 1(1), pages 101-108, June.
    8. Knetsch, Jack L & Sinden, J A, 1984. "Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 507-21, August.
    9. Ortona, Guido & Scacciati, Francesco, 1992. "New experiments on the endowment effect," Journal of Economic Psychology, Elsevier, vol. 13(2), pages 277-296, June.
    10. Belk, Russell W, 1988. " Possessions and the Extended Self," Journal of Consumer Research, University of Chicago Press, vol. 15(2), pages 139-68, September.
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