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Mistakes, Closure and Endowment Effect in Laboratory Experiments

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  • Anmol Ratan

Abstract

In this paper, we relax the hard closure property of experiments that have been used to study endowment effect in laboratory. We study differences in benchmark environments (hard closure) and an environment that allows participants to reverse the decisions taken in the laboratory (soft closure). We find that “endowment effect” is not observed in the soft closure treatment. The procedures in our experiment allow us to circumvent the critique of altered expectations. Our results call for a careful interpretation of experiments that suggest “endowment effect” in laboratory conditions. Other implications pertain to external validity of experiments with hard closure.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2012/2212mistakesclosureratan.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 22-12.

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Length: 47 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:mos:moswps:2012-22

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Related research

Keywords: prospect-theory; endowment effect; reference-dependence; loss aversion; lab experiments; field experiments; external validity;

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  1. Shlomo Benartzi & Richard H. Thaler, 1993. "Myopic Loss Aversion and the Equity Premium Puzzle," NBER Working Papers 4369, National Bureau of Economic Research, Inc.
  2. Andersen, Steffen & Ertaç, Seda & Gneezy, Uri & Hoffman , Moshe & List, John A., 2011. "Stakes Matter in Ultimatum Games," Working Papers 01-2011, Copenhagen Business School, Department of Economics.
  3. John List & David Reiley, 2008. "Field experiments," Artefactual Field Experiments 00091, The Field Experiments Website.
  4. Lange, Andreas & Ratan, Anmol, 2010. "Multi-dimensional reference-dependent preferences in sealed-bid auctions - How (most) laboratory experiments differ from the field," Games and Economic Behavior, Elsevier, vol. 68(2), pages 634-645, March.
  5. Dirk Engelmann & Guillaume Hollard, 2010. "Reconsidering the Effect of Market Experience on the “Endowment Effect”," Econometrica, Econometric Society, vol. 78(6), pages 2005-2019, November.
  6. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February.
  7. 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.
  8. John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc.
  9. Steven D. Levitt & John A. List, 2007. "Viewpoint: On the generalizability of lab behaviour to the field," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 347-370, May.
  10. Keith M. Marzilli Ericson & Andreas Fuster, 2011. "Expectations as Endowments: Evidence on Reference-Dependent Preferences from Exchange and Valuation Experiments," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1879-1907.
  11. repec:feb:framed:0088 is not listed on IDEAS
  12. Ori Heffetz & John A. List, 2011. "Is the Endowment Effect a Reference Effect?," NBER Working Papers 16715, National Bureau of Economic Research, Inc.
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