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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. 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, vol. 102(3), pages 679-90, August.
  2. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
  3. David Genesove & Christopher Mayer, . "Loss Aversion and Seller Behavior: Evidence from the Housing Market," Zell/Lurie Center Working Papers 323, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  4. List, John A & Shogren, Jason F, 1998. "The Deadweight Loss of Christmas: Comment," American Economic Review, American Economic Association, vol. 88(5), pages 1350-55, December.
  5. 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, vol. 17(2), pages 229-252, November.
  6. Camerer, Colin F. & Hogarth, Robin M., 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Working Papers 1059, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. Knetsch, Jack L & Sinden, J A, 1987. "The Persistence of Evaluation Disparities," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 691-95, August.
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