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Trading experience modulates anterior insula to reduce the endowment effect

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Listed:
  • Kentaro Asai
  • Seda Ertac
  • Ali Hortacsu
  • John List
  • Howard Nusbaum
  • Lester Tong
  • Karen Ye

Abstract

People often demand a greater price when selling goods that they own than they would pay to purchase the same goods- a well-known economic bias called the endowment effect. The endowment effect has been found to be muted among experienced traders, but little is known about how trading experience reduces the endowment effect. We show that when selling, experienced traders exhibit lower right anterior insula activity, but no differences in nucleus accumbens or orbitofrontal activation, compared with inexperienced traders. Furthermore, insula activation mediates the effect of experience on the endowment effect. Similar results are obtained for inexperienced traders who are incentivized to gain trading experience. This finding indicates that frequent trading likely mitigates the endowment effect indirectly by modifying negative affective responses in the context of selling.

Suggested Citation

  • Kentaro Asai & Seda Ertac & Ali Hortacsu & John List & Howard Nusbaum & Lester Tong & Karen Ye, 2016. "Trading experience modulates anterior insula to reduce the endowment effect," Framed Field Experiments 00717, The Field Experiments Website.
    • Handle: RePEc:feb:framed:00717
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    Cited by:

    1. Strijbis, Oliver & Arnesen, Sveinung, 2019. "Explaining variance in the accuracy of prediction markets," International Journal of Forecasting, Elsevier, vol. 35(1), pages 408-419.
    2. Feng, Lei & Zhang, Minghui & Li, Yixin & Jiang, Yan, 2020. "Satisfaction principle or efficiency principle? Decision-making behavior of peasant households in China’s rural land market," Land Use Policy, Elsevier, vol. 99(C).
    3. John List, 2020. "Non est Disputandum de Generalizability? A Glimpse into The External Validity Trial," Artefactual Field Experiments 00711, The Field Experiments Website.
    4. Jeff Hobbs & Vivek Singh, 2022. "The endowment effect and the trading of draft picks in major professional U.S. sports," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1929-1942, October.

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