Study of Endowment Effect in Construction Project Dispute Resolution

Abstract

Endowment effect (EE) describes the phenomenon that people require more to relinquish items they own than they are willing to pay for the same. This can be explained by the tendency of people to overvalue their belongings, properties, opinions, and decisions. Thus, the happenings of EE undermine rational choices. This study examines the happenings of EE in construction project dispute resolution (CPDR). Four sources of EE were identified from the literature: ownership, loss aversion, status quo bias, and strategic bargaining habits. The sources of EE were operationalized as CPDR manifestations. With data collected from construction practitioners, the occurrence of EE manifestations was confirmed. It was further unveiled that construction dispute parties from different construction sectors displayed a similar extent of EE behaviors in CPDR. This study contributes to CPDR practices by suggesting the involvement of third-party neutral advisors throughout the project duration to minimize the effects of EE. With their professional, impartial, and objective reminders, disputing parties’ unrealistic expectations would be reviewed.