Prior research has consistently demonstrated that people are reluctant to trade a good they own for an alternative good, particularly when the alternative (or “target”) represents a substantial departure from the “endowment”. We demonstrate that the endowment effect can be reduced by first making participants consider trading their endowment for an intermediate alternative (which shares some characteristics of the endowment and some characteristics of the target). We find that this “intermediate alternative effect” operates primarily by shifting one's reference point in the direction of the target alternative. Even when the intermediate alternative is not adopted, the extent to which one's endowment is treated as a reference point is weakened, which can also facilitate subsequent trading.

decision making, endowment effect, loss aversion, prospect theory, reference point,
ERIM Top-Core Articles
Journal of Consumer Psychology
Erasmus Research Institute of Management

Paolacci, G, Burson, K.A, & Rick, S.I. (2011). The intermediate alternative effect: Considering a small tradeoff increases subsequent willingness to make large tradeoffs. Journal of Consumer Psychology, 21(4), 384–392. doi:10.1016/j.jcps.2011.04.005