Trading experience modulates anterior insula to reduce the endowment effect

Tong, L. C., Ye, K. J, Asai, K., Ertac, S., List, J. A., Nusbaum, H. C., & Hortacsu, A. (2016). Trading experience modulates anterior insula to reduce the endowment effect. Proceedings of the National Academy of Sciences, 1-6.

Abstract: Trading experience has been shown to reduce the endowment effect, a decision-making bias that distorts market prices and reduces trade. Understanding the mechanisms underlying how experience changes this bias will provide important insights for developing interventions to improve market efficiency. Using functional magnetic resonance imaging, we show that market experience causes a reduction in right anterior insula activation during selling, which mediates a decrease in the endowment effect. These findings suggest that trading mitigates negative affective responses in the context of selling.

People often demand a greater price when selling goods that they own than they would pay to purchase the same goods—a well-known economic bias called the endowment effect. The endowment effect has been found to be muted among experienced traders, but little is known about how trading experience reduces the endowment effect. We show that when selling, experienced traders exhibit lower right anterior insula activity, but no differences in nucleus accumbens or orbitofrontal activation, compared with inexperienced traders. Furthermore, insula activation mediates the effect of experience on the endowment effect. Similar results are obtained for inexperienced traders who are incentivized to gain trading experience. This finding indicates that frequent trading likely mitigates the endowment effect indirectly by modifying negative affective responses in the context of selling.

Read the article: Tong, L. C., Ye, K. J, Asai, K., Ertac, S., List, J. A., Nusbaum, H. C., & Hortacsu, A. (2016). Trading experience modulates anterior insula to reduce the endowment effect. Proceedings of the National Academy of Sciences, 1-6



(Something interesting I found)Posted:Aug 01 2016, 12:00 AM by jlmatelski
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