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Salience in Experimental Tests of the Endowment Effect

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  • Pedro Bordalo
  • Nicola Gennaioli
  • Andrei Shleifer

Abstract

We provide a novel account of experimental evidence for the endowment effect using the salience mechanism (Bordalo, Gennaioli, and Shleifer, 2011). The two-stage procedure implemented in experiments implies that the endowed good and other goods are evaluated in different contexts. We describe conditions under which the standard effect occurs, but also account for recent evidence such as a reverse endowment effect for bads and a role for reference prices in modulating the WTA-WTP gap.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.3.47
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 3 (May)
Pages: 47-52

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:3:p:47-52

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References

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  1. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-84, December.
  2. Shleifer, Andrei & Bordalo, Pedro & Gennaioli, Nicola, 2012. "Salience Theory of Choice Under Risk," Scholarly Articles 10636303, Harvard University Department of Economics.
  3. Ori Heffetz & John A. List, 2011. "Is the Endowment Effect a Reference Effect?," NBER Working Papers 16715, National Bureau of Economic Research, Inc.
  4. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February.
  6. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-48, December.
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Cited by:
  1. Pedro Bordado & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience and Consumer Choice," Working Papers 501, Barcelona Graduate School of Economics.
  2. Gennaioli, Nicola & Martin, Alberto & Rossi, Stefano, 2010. "Sovereign Default, Domestic Banks and Financial Institutions," CEPR Discussion Papers 7955, C.E.P.R. Discussion Papers.
  3. Lunn, Pete & Lunn, Mary, 2014. "A Computational Theory of Willingness to Exchange," Papers WP477, Economic and Social Research Institute (ESRI).

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