Who's biased? A meta-analysis of buyer-seller differences in the pricing of lotteries

A large body of empirical research has examined the impact of trading perspective on pricing of consumer products, with the typical finding being that selling prices exceed buying prices (i.e., the endowment effect). Using a meta-analytic approach, we examine to what extent the endowment effect also emerges in the pricing of monetary lotteries. As monetary lotteries have a clearly defined normative value, we also assess whether one trading perspective is more biased than the other. We consider several indicators of bias: absolute deviation from expected values, rank correlation with expected values, overall variance, and per-unit variance. The meta-analysis, which includes 35 articles, indicates that selling prices considerably exceed buying prices (Cohen's d = 0.58). Importantly, we also find that selling prices deviate less from the lotteries' expected values than buying prices, both in absolute and in relative terms. Selling prices also exhibit lower variance per unit. Hierarchical Bayesian modeling with cumulative prospect theory indicates that buyers have lower probability sensitivity and a more pronounced response bias. The finding that selling prices are more in line with normative standards than buying prices challenges the prominent account whereby sellers' valuations are upward biased due to loss aversion, and supports alternative theoretical accounts.