Irrationality in digital markets? The endowment effect in Non-fungible tokens

Humans are often irrational, and this translates to irrationality in economic markets. The endowment effect, in which seller’s willingness to pay is significantly lower than buyer’s willingness to accept, has been one of the most influential findings stemming from consumer and cognitive psychology as it created a fundamental shift in economic theory. Does the endowment effect extend to digital objects? Non-fungible tokens are a type of digital good that represents an asset that cannot be substituted. For example, a piece of artwork that is unique and cannot be duplicated. We sought to determine if the endowment effect can be observed for NFTs. To this end, 97 participants were
shown a NFT that depicted an avatar that could be used in an online game. They were asked to either provide the price they would be willing to pay for the NFT (Buy condition) or would be willing to accept for the NFT (Sell condition). A planned directional Bayesian t-test indicated the presence of an endowment effect. Thus, irrationality in economic decision-making persisted to digital gaming avatars. This initial work highlights the need to understand how individuals value novel digital goods such as NFTs, Cryptocurrencies, and Digital currencies from a cognitive perspective.