The Endowment Effect on Consumer Economic Behavior

Abstract

Since the 1990s, the endowment effect was studied in experimental settings. After the 21st century, studies on its application in different fields emerged. The endowment effect is one of the key topics in today's research, and based on the data models and conclusions of the related literature, the paper explores the impact of the endowment effect on consumer economic behavior in the labor market and used car market. It is found that the endowment effect affects consumers' economic behavior through two features: ownership effect and loss aversion. In the labor market, the endowment effect causes employees to overestimate wage expectations, resist lower wages, and refer to previous earnings. In the used car market, the endowment effect causes sellers to overestimate price expectations for used cars, reduce willingness to trade, and irrationally obtain and evaluate information. The endowment effect impacts both markets significantly and negatively. Understanding and utilizing it can improve the efficiency and profitability of market operations.