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Journal of the Association for Information Systems

Abstract

Subjective judgments regarding information are important for the design of information systems. This study examines the endowment effect in the context of evaluating information. Theoretically, value judgments that affect the demand for information are influenced by ownership rights, a phenomenon known as the endowment effect in trading situations. In a simple computer simulated business game, 31 participants conducted a management task in which they were provided opportunities to buy or sell information. The bidding mechanism was incentive compatible. Results show that, in agreement with endowment effect theory, people value information they own much more than information they do not own. This portends undertrading in information. Therefore, the subjective value of information should be considered in the design of systems. Our findings indicate a place for the subjective value of information on the WTA/WTP ratio continuum that emerges from pertinent literature. The ratio for information is similar to that of market goods. Participants had a strong inclination to purchase but not to sell information even though the profit data suggests that the use of information had no objective benefit. This preference is attributed to risk aversion rather than to loss aversion, which is the most widely accepted explanation of the endowment effect. The subjective value of information can, therefore, be affected by system design.

DOI

10.17705/1jais.00032

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