When meeting a seller to buy a used car the buyer almost always is informed of a price that is much higher than the market value of the vehicle. Consumers set the price at much more than the car is worth because they feel threatened, according to a study published in the Journal of Consumer Research.
“When consumers consider selling a product they own, they feel threatened by the impending loss. In order to counter this threat, they increase the product’s value,” says Promothesh Chatterjee, a researcher at the University of Kansas.
Researchers assigned the role of buyers to some subjects and the role of sellers to others, after which they provided each person with a mug. Sellers were told they could either keep the mug or sell it; buyers were told to form an idea of the mug – simply hold on to it. Then, researcher showed a series of threatening words on the screen like “endanger”.
Researchers also showed some of the subjects non-threatening and neutral words. Those who were shown threatening words increased the price of their mug. “Sellers responded to threat-related words much more quickly than buyers, and this difference in their response time led to significantly higher selling prices compared to buying prices,” according to the study.
The result of the study show that consumers feel threatened when parting with their possessions. What is called the endowment effect, when consumers want to sell a good they own at a price they themselves would be unwilling to pay in the market, kicks in when selling a good that belongs to them.
How do you overcome the endowment effect? Researchers suggest the buyer ought to flatter the seller: “Affirming a seller leads to elimination of the endowment effect. Buyers may want to affirm sellers to make them feel less threatened by the loss of a possession and therefore willing to set lower prices. Next time you are buying a second-hand car, for example, you may want to start the negotiation by telling the car owner what a wonderful family she has.”