Trading experience modulates anterior insula to reduce the endowment effect

Lester C.P. Tong; Karen J. Ye; Kentaro Asai; Seda Ertac; John A. List; Howard C. Nusbaum; Ali Hortaçsu

doi:10.1073/pnas.1519853113

Trading experience modulates anterior insula to reduce the endowment effect

Lester C.P. Tong, Karen J. Ye, Kentaro Asai, Seda Ertac, John A. List, Howard C. Nusbaum, Ali Hortaçsu^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

25 Citations (Scopus)

Abstract

People often demand a greater price when selling goods that they own than they would pay to purchase the same goods-a wellknown 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.

Original language	English
Pages (from-to)	9238-9243
Number of pages	6
Journal	Proceedings of the National Academy of Sciences of the United States of America
Volume	113
Issue number	33
DOIs	https://doi.org/10.1073/pnas.1519853113
Publication status	Published - 16 Aug 2016

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abstract = "People often demand a greater price when selling goods that they own than they would pay to purchase the same goods-a wellknown 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.",

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Trading experience modulates anterior insula to reduce the endowment effect

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