Attenuating Endowment Effect with Venmo: Online Payment Systems Make it a Pleasure to Pay

People typically demand more to relinquish a good they own than they would be willing to pay to acquire the good. This phenomenon is known as the endowment effect (Kahneman, Knetsch, and Thaler, 1990). The economic impact of the endowment effect is consequential. The discrepancy between sellers’ willingness to accept (WTA) and buyers’ willingness to pay (WTP) leads to irregularities in valuation between buyers and sellers, increases people’s reluctance to trade and causes market inefficiencies. Thus, the endowment effect has generated great interest among scholars from a variety of fields, including marketing, economics, psychology, and public policies (Morewedge and Giblin, 2015). Recent years have witnessed a huge increase in consumer-to-consumer business where individuals act as sellers and buyers in the marketplace to exchange goods or services. In addition to traditional off-line marketplaces, online transactions are also becoming more popular. eBay is one of the most famous examples. Coinciding with the development of the online market is an increase in the use of online payment systems such as Venmo, Zelle, and Paypal, etc. Online payment systems enable people to manage their bank account through their online bank applications. With a single click on the app, consumers can transfer money to and receive money from others, split checks, and more. While traditional payment methods such as cash still occupy a large share of consumer payments (25.6%), the share of electronic payment methods reached 10.5% in 2014 (Greene, Schuh, and Stavins, 2016). The use of electronic payment methods is still on the rise. In the current work, we examine how the shift to the cash-less market affects marketing efficiency. Specifically, we look at how using online payment systems influence the endowment effect.