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Does market experience eliminate market anomalies?

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  • John List

Abstract

This study examines individual behavior in two well-functioning marketplaces to investigate whether market experience eliminates the endowment effect. Field evidence from both markets suggests that individual behavior converges to the neoclassical prediction as market experience increases. In an experimental test of whether these observations are due to treatment (market experience) or selection (e.g., static preferences), I find that market experience plays a significant role in eliminating the endowment effect. I also find that these results are robust to institutional change and extend beyond the two marketplaces studied. Overall, this study provides strong evidence that market experience eliminates an important market anomaly.

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Bibliographic Info

Paper provided by The Field Experiments Website in its series Natural Field Experiments with number 00297.

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Date of creation: 2003
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Handle: RePEc:feb:natura:00297

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Web page: http://www.fieldexperiments.com

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  1. List, John A & Shogren, Jason F, 1998. "The Deadweight Loss of Christmas: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 88(5), pages 1350-55, December.
  2. Genesove, David & Mayer, Christopher, 2001. "Loss Aversion and Seller Behaviour: Evidence from the Housing Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2813, C.E.P.R. Discussion Papers.
  3. John List, 2004. "Neoclassical theory versus prospect theory: Evidence from the marketplace," Framed Field Experiments 00174, The Field Experiments Website.
  4. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, Springer, vol. 19(1-3), pages 7-42, December.
  5. John List, 2001. "Do explicit warnings eliminate the hypothetical bias in elicitation procedures? Evidence from field auctions for sportscards," Framed Field Experiments 00163, The Field Experiments Website.
  6. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(4), pages 1039-61, November.
  7. Coursey, Don L & Hovis, John L & Schulze, William D, 1987. "The Disparity between Willingness to Accept and Willingness to Pay Measures of Value," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(3), pages 679-90, August.
  8. Van de Ven, Wynand P. M. M. & Van Praag, Bernard M. S., 1981. "The demand for deductibles in private health insurance : A probit model with sample selection," Journal of Econometrics, Elsevier, Elsevier, vol. 17(2), pages 229-252, November.
  9. Knetsch, Jack L & Sinden, J A, 1987. "The Persistence of Evaluation Disparities," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(3), pages 691-95, August.
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