In a new collaborative study, PIK Professor Michael Platt models how the decision-making process unfolds in the brains of buyers and sellers considering a deal. These decisions were observable in eye movements and pupil dilation.
relies on buying and selling, but people are often reluctant to trade what they have for what they do not have, even when doing so is objectively irrational. This phenomenon is known as the"endowment effect," and it limits trade efficiency.
"In trading situations, most people focus on what they might lose rather than what they might gain because our vigilance system has evolved to always be on the lookout for threats," Platt says. As expected, the endowment effect was evident for both buyers and sellers. Buyers were slower to choose to buy than to choose not to buy, suggesting hesitancy to acquire lottery tickets at most prices, but sellers were slower to choose to sell than to choose not to sell.
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