THE CREATIVITY EFFECT
Law, Business, Policy, & Education
SCHOOL OF LAW
Christopher Sprigman, Professor of Law
with co-author Christopher Buccafusco, Chicago-Kent College of Law
Creators value their works substantially more than
would-be purchasers or mere owners.
INTRODUCTION Intellectual Property (IP) law is committed
to an account of IP valuation derived from the “rational choice”
model of neoclassical economics. This account assumes that
people engaged in IP markets will rationally value works and
inventions and make efficient transfers of rights.
Recently, the rational choice model has been challenged by
social scientific research showing that owners of goods are often
subject to an endowment effect, causing them to substantially
overvalue the goods they own. This can lead to higher transaction costs and inefficient markets.
QUERY Do endowment effects occur for IP-like goods that are
1) created by the owner and 2) non-rival?
HYPOTHESIS Creators will value the works that they create
more than either potential purchasers or mere owners of the
works.
EXPERIMENTAL METHOD We modeled a market for IP
rights where the transactions involved only the rents that could be
obtained from owning the goods and not the goods themselves.
To do so, we created a contest with a known pay-out ($100) for
creative works and allowed subjects to buy and sell the right to
win the contest prize.
We solicited paintings from students at a local art school. The
Painters were told that their work would be entered in a contest
with nine other paintings and judged by an art expert. The winning
painting would receive a $100 prize. Each Painter was told that
there would also be a group of Buyers, one of whom would make
the Painter a cash offer for her chance to win the prize. The
Painters were asked to indicate the lowest amount of money they
would be willing to accept to sell their chance to win the prize.
The Buyers were recruited from a local university. They were told
that 10 paintings had been submitted to a contest for a $100 and
that they would have the opportunity to bid on one of the
paintings’ chances to win. They were shown a painting and asked
to indicate the most amount of money they would be willing to
pay to purchase its chance to win the prize.
The Owners were also recruited from a local university. They
were told that 10 paintings had been submitted for a contest for a
$100 prize and that they “owned” one of the paintings’ chances to
win the prize. They were told that a Buyer would make them a
cash offer for their chance to win the prize and were asked to
indicate the lowest amount of money they would be willing to
accept to sell their chance to win the prize. All subjects then
answered a series of follow-up questions.
RESULTS AND IMPLICATIONS This experiment
detected a significant valuation anomaly associated with goods
that were created by the owner. Creators valued their works
substantially more than did either would-be purchasers or mere
owners. These results are particularly striking because the goods
were both non-rival and incompletely alienated. We call this
anomaly the Creativity Effect. The valuation differences between
roles seems to be driven almost exclusively by Painters’ and
Mean Valuation of Works
$80
$74.59
70
60
50
$40.67
40
30
$17.39
20
10
Painter
Owner
What could be
causing these
differences?
ROLE
Optimism, Regret Aversion
Buyer
PROBABILITY
REGRET
Painter
52.8%
5.1
Owner
41.9%
3.7
Buyer
31.8%
3.9
All of these differences are statistically significant to p < .01. In
ANCOVA analysis with role as a fixed factor and quality, regret,
and predicted probability of winning as covariates, the effect of
role was highly significant. F (2, 47) = 18.13, p < .0005. All of
the groups significantly differ from one another. Painters assign
higher values than both Owners (t (33) = 4.11, p < .0005) and
Buyers (t (37) = 7.75, p < .0005), and Owners assign higher
values than Buyers (t (38) = 3.17, p < .005).
Assigned value was significantly correlated with probability (r =
.44, p < .01). Additionally, in ANCOVA analysis with role as a
fixed factor and quality, regret, and predicted probability of
winning as covariates, predicted probability of winning significantly predicted the value assigned to the poem, F (1, 47) =
6.93, p < .05. In ANCOVA analysis of value, with role as a fixed
factor and quality, regret, and predicted probability of winning as
covariates, regret is very close to being significant (p = .057).
Neither emotional attachment nor time spent creating the painting significantly predicted Painters’ valuations.
Owners’ excessive optimism about their likelihood of winning the
prize. This optimism will likely lead to inefficiencies in markets in
creative goods, including IP markets for copyrighted and patented
works and inventions. Because we consider these valuations to
derive from irrational preferences, we suggest ways in which the
law or markets might mitigate their effects.
The results suggest consequences for
• Preferences for liability rules instead of
property rules
• Legitimate forms of IP formalities
• Royalty-based licensing
• Amending the Fair Use and Work-Made-ForHire doctrines
Presidential Inauguration Research Poster Competition
April 14, 2011
This paper reports the first
experiment to demonstrate
the existence of a valuation anomaly associated
with the creation of new
works. To date, a wealth of
social science research
has shown that substantial
valuation asymmetries
exist between owners of
goods and potential
purchasers of them. The
least amount of money
that owners are willing to
accept to part with their
possessions is often far
greater than the amount
that purchasers would be
willing to pay to obtain
them. Our experiment
demonstrates the existence of a related
“creativity effect”.
We show that the creators
of works value their
creations substantially
more than do both
purchasers of their works
and mere owners of the
works. Further, we provide
evidence that these differences are the result of
both creators’ irrational
optimism about the quality
of their work and potentially rational regret aversion associated with selling emotionally endowed
property. We conclude by
discussing the implications
of these findings for intellectual property theory in
general and IP licensing in
particular.