Does exerting effort lead to endowment effect?

Abstract

In this study, we examined the relationship between effort exerted and endowment effect. We conducted this experiment within two separate groups of people in order to test whether endowment effect exists within subjects without having any effort put and compared the degree of endowment effect exhibited with the subjects who were required to exert effort. The experiment is designed through modifying the original experiment conducted by Knetsch (1989) by using coffee mug and chocolate bar for our experiment. Our study found that there is a positive relationship between endowment effect and effort exerted by our subjects and it also revealed that the effect was higher in females compared to males. The association between endowment effect and effort can be attributed to people's inherent tendency to be loss averse. The relationship between effort put and loss aversion can be explained using the attachment theory and effort justification theory in social psychology. Therefore, our findings not only provide an important insight for explaining economic anomalies, but also testify a theory in social psychology using an economic method.