Raban, Daphne, Sheizaf Rafaeli

The Lemonade Stand: Experimental Investigation of the Subjective Value of Information

Abstract

Subjective valuations determine the demand for information. User-formulated value judgments regarding information are important for understanding information consumption patterns on and off the web. Theoretically, value judgments are influenced by ownership rights, a phenomenon coined the "Endowment Effect" in trading situations. This study examines the Endowment Effect in the context of evaluating information. In an online computer-simulated business game called "The Lemonade Stand", participants conducted a management task in which they were provided opportunities to buy or sell information by placing bids. The bidding mechanism was incentive compatible. Results show that, in agreement with Endowment Effect theory, people value information they own much more than information not owned by them. Our findings indicate a place for the subjective value of information on the WTA/WTP ratio (Willingness to Accept by Willingness to Purchase) 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 for profit-making. This preference is attributed to risk aversion rather that to loss aversion which is the most widely-accepted explanation of the Endowment Effect. Results of this study should inform the design of online systems as well as the debate over the "information wants to be free" slogan.