Perceived Value and Decision Making: An Experimental Study of Endowment Effect

Abstract

Behavioral economics, a discipline that integrates psychology with economics, challenges the traditional idea of rational decision-making by revealing systematic cognitive biases that influence individual choices. Among these biases, the Endowment Effect and the concept of Perceived Value are fundamental for understanding deviations from rational choice theory. The current study employed a quasi-experimental design to investigate the endowment effect and perceived item valuation among 112 undergraduate students  drawn from 3 academic departments in 4 sets at University of Malakand. The sample was equally distributed, with 28 students in each set. Within each Set, 14 students were randomly assigned Book as a gift, and 14 were gifted with Mug. Data was collected using a tailored questionnaire The graphical depiction of the data,  the statistical test results of Mann- Whitney along with mean ranks and sum of ranks were utilized to analyze the data and draw conclusions.  The exchange decision choice further clarifies the participants’ behavior regarding endowment effect. The robust WTA-WTP disparity, coupled with owners' significantly higher propensity to keep their endowed item, confirms the presence of the endowment effect among University of Malakand students. The mild framing was also incorporated in some samples and it can be concluded that although the framing was very mild still the effects can be noticed by comparing the exchange decision of two framed groups,  and framing effect is evident in the results.