Reconsidering the Effect of Market Experience on the “Endowment Effect”
AbstractSimple exchange experiments have revealed that participants trade their endowment less frequently than standard demand theory would predict. List (2003a) ï¬nds that the most experienced dealers acting in a well-functioning market are not subject to this exchange asymmetry, suggesting that a signiï¬cant amount of market experience is required to overcome it. In order to understand this market-experience effect, we introduce a distinction between two types of uncertainty, choice uncertainty and trade uncertainty, both of which could lead to exchange asymmetry. We conjecture that trade uncertainty is most important for exchange asymmetry. To test this conjecture, we design an experiment where the two treatments impact diï¬erently on trade uncertainty, while controlling for choice uncertainty. Supporting our conjecture, we ï¬nd that "forcing" subjects to give away their endowment in a series of exchanges eliminates exchange asymmetry in a subsequent test. We discuss why markets might not provide sufficient incentives for learning to overcome exchange asymmetry.
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Bibliographic InfoArticle provided by Econometric Society in its journal Econometrica.
Volume (Year): 78 (2010)
Issue (Month): 6 (November)
Other versions of this item:
- Dirk Engelmann & Guillaume Hollard, 2010. "Reconsidering the Effect of Market Experience on the "Endowment Effect"," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) hal-00633557, HAL.
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