Moods and markets

Published: January, 2007

An experiment published in the journal Psychological Science demonstrates a surprising effect of emotion on decisions about buying and selling. Economists are familiar with a phenomenon called the endowment effect: The price we demand to part with something we own is higher than the price we are willing to pay for it when it belongs to someone else. In other words, we value things more highly when we own them than when we don't. The experiment shows that the endowment effect is not an iron law but subject in a surprising way to the influence of emotions "" even feelings that have nothing to do with the market transaction itself.

Two hundred college students were divided at random into three groups that watched a video: one evoking sadness (the death of a boy's mentor), one evoking disgust (a filthy toilet), or a neutral one (fish on a coral reef). They wrote about their feelings during the video. Then half of them, again chosen at random, took the role of sellers. They were given a highlighter set and asked to choose the price at which they would be willing to sell it back to the experimenters; offers ranged from 50¢ to $14.

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