1. The art of the deal: Deciphering the endowment effect from traders' eyes.
- Author
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Sheng F, Wang R, Liang Z, Wang X, and Platt ML
- Subjects
- Humans, Arousal, Emotions
- Abstract
People are often reluctant to trade, a reticence attributed to the endowment effect. The prevailing account attributes the endowment effect to valuation-related bias, manifesting as sellers valuing goods more than buyers, whereas an alternative account attributes it to response-related bias, manifesting as both buyers and sellers tending to stick to the status quo. Here, by tracking and modeling eye activity of buyers and sellers during trading, we accommodate both views within an evidence-accumulation framework. We find that valuation-related bias is indexed by asymmetric attentional allocation between buyers and sellers, whereas response-related bias is indexed by arousal-linked pupillary reactivity. A deal emerges when both buyers and sellers attend to their potential gains and dilate their pupils. Our study provides preliminary evidence for our computational framework of the dynamic processes mediating the endowment effect and identifies physiological biomarkers of deal-making.
- Published
- 2023
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