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When the shoe is on the other foot: experimental evidence on evaluation disparities

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Author Info
Lucy F. Ackert
Bryan K. Church
Gerald P. Dwyer

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Abstract

Research provides evidence that the method chosen to elicit value has an important effect on a person’s valuation. We hypothesize that role has a crucial effect on decision makers’ elicited values: Buyers prefer to pay less and sellers prefer to collect more. We conduct experimental sessions and replicate the disparity between willingness to pay and willingness to accept. We conduct additional sessions in which role is stripped away: Endowed decision makers provide values that are used to determine a price at which anonymous others transact. Importantly, decision makers’ earnings in the experiment are not affected by the elicited values, but the endowments influence decision makers’ valuations. Our findings suggest that decision makers consider their relative standing, in comparison to anonymous others, in providing valuations. The disparity between willingness to pay and willingness to accept disappears when decision makers’ endowments ensure that they are at least as well off as other participants.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2005-17.

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Date of creation: 2005
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Handle: RePEc:fip:fedawp:2005-17

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  8. Van Boven, Leaf & Loewenstein, George & Dunning, David, 2003. "Mispredicting the endowment effect:: Underestimation of owners' selling prices by buyer's agents," Journal of Economic Behavior & Organization, Elsevier, vol. 51(3), pages 351-365, July. [Downloadable!] (restricted)
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  10. Sara J. Solnick & David Hemenway, 2000. "The Deadweight Loss of Christmas: Reply," American Economic Review, American Economic Association, vol. 90(1), pages 325-325, March. [Downloadable!] (restricted)
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  17. Nicholas Barberis & Ming Huang & Tano Santos, 2001. "Prospect Theory And Asset Prices," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 1-53, February. [Downloadable!] (restricted)
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