Ownership Status and the Representation of Assets of Uncertain Value: The Balloon Endowment Risk Task (BERT)

Abstract

Owners tend to overvalue possessions relative to non‐owners: a phenomenon known as the endowment effect. In three experiments, using markets for goods of uncertain value, we investigated whether this can be partly attributed to misperceiving an asset's profitability or to uncertainty about a good's utility. To test our hypotheses, we devised the Balloon Endowment Risk Task, in which participants can sell or buy their right to participate in the Balloon Analogue Risk Task. Once purchased/retained, a virtual balloon is pumped to accrue money, which is lost if the balloon bursts. Participants first learn about the risky asset (balloon) by observing others playing the Balloon Analogue Risk Task before they enter the market. In Experiment 1, we replicated the endowment effect; yet, owners and non‐owners predicted pumping the same number of times and subsequently did so when given that opportunity. In Experiments 2 and 3, the level of uncertainty about the balloon's profitability was manipulated by modifying the number of bursts that participants viewed in the initial learning stage. When more diagnostic information was provided, making the average burst point easier to estimate and reducing value uncertainty and increasing confidence in valuation, the endowment effect diminished although mean estimates of the average burst point did not differ between owners and non‐owners. Thus, endowment effects were partly attributable to value uncertainty but could not be explained by owners and non‐owners having divergent perceptions of the asset's payoff distribution. Copyright © 2014 John Wiley & Sons, Ltd.

Mapping risk perceptions in dynamic risk‐taking environments

“…In particular, risk perceptions are shaped by early experiences, which in turn impact risk‐taking behavior lastingly. These results corroborate previous findings that report the importance of early experience in the BART (Koscielniak et al, ; Walasek et al, ) and even a wider range of tasks (Shteingart et al, ). Our results go beyond these findings in that they isolate these effects to participants' risk perceptions.…”

“…Doing so also provided us a means to test the hypothesis that initial experiences in the BART play a large role in shaping participants' risk perceptions, which in turn might impact risk‐taking behavior throughout the task. That is, building on the finding from Koscielniak et al () that the experience on first three balloons in the BART has a high impact on subsequent risk‐taking behavior (see also ; Shteingart et al, ; Walasek et al, ), we hypothesized that risk perceptions play a mediating role between participants' early experiences and risk‐taking behavior in the BART. To test this hypothesis, we manipulated the explosion point of the first balloon, holding everything else constant.…”

“…That is, building on the finding from Koscielniak et al (2016) that the experience on first three balloons in the BART has a high impact on sub-4 Smokers and nonsmokers did not differ in of the probability-rating function; : F(1, 98) = 0.35, p = 0.555, 2 G = 0.004. sequent risk-taking behavior (see also ; Shteingart et al, 2013;Walasek et al, 2014), we hypothesized that risk perceptions play a mediating role between participants' early experiences and risk-taking behavior in the BART. To test this hypothesis, we manipulated the explosion point of the first balloon, holding everything else constant.…”

“…For example, why do people's initial experiences appear to have such a strong impact on behavior? One study showed that the first three explosions in the BART have a substantial influence on people's behavior throughout the task (Koscielniak, Rydzewska, & Sedek, ), and another study demonstrated that the first few explosions shape people's certainty about their decisions (Walasek, Wright, & Rakow, ). In a related paradigm, even altering only people's very first experience had a lasting impact on their behavior throughout the task (Shteingart, Neiman, & Loewenstein, ).…”

“…people's certainty about their decisions (Walasek, Wright, & Rakow, 2014). In a related paradigm, even altering only people's very first experience had a lasting impact on their behavior throughout the task (Shteingart, Neiman, & Loewenstein, 2013).…”