Wanna trade? Product knowledge and the perceived differences between the gains and losses of trade

Abstract

We examine the effect of ownership on behavioural decision making in the context of trade. Based on the notion that traders may experience loss aversion, and that this is negatively related to willingness to trade, we reason that willingness to trade is a function of perceived similarities between the gains and losses of a trade. More specifically, we predicted that willingness to trade is a function of the characteristics of the trader: The traders' product knowledge about the objects involved in the trade may affect willingness to trade by affecting the differences traders perceive between the objects involved. In two experiments, participants endowed with a bottle of wine were offered the opportunity to trade their wine for another wine. Results of Experiment 1 indicated that the more knowledgeable participants were about wine, the more reluctant they were to trade, irrespective of what wine they possessed. The results of Experiment 2, in which we manipulated product knowledge, corroborated these findings. Copyright © 2004 John Wiley & Sons, Ltd.

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