Revista Brasileira de Finanças (Apr 2009)
The Influence of Emotions on the Endowment Effect
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.
