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Experimental tests of the endowment effect

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Author Info

  • Franciosi, Robert
  • Kujal, Praveen
  • Michelitsch, Roland
  • Smith, Vernon
  • Deng, Gang

Abstract

The endowment effect, which predicts undertrading and a willingness-to-accept greater than willingness-to-pay, is studied using responses that remove all reference to buying or selling and focuses only on choice tasks. The results significantly lower the willingness-to-pay/willingness-to accept discrepancy, but the latter is still significant. A high efficiency open display uniform price auction is used to exchange mugs for money. Since mugs are randomly assigned to half of 2N subjects, N/2 mugs are predicted to trade. Less than N/2 mugs trade on average, but more than previously reported. The phenomenon exists but is less prominent than reported previously.

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File URL: http://e-archivo.uc3m.es/bitstream/10016/5350/2/experimental_kujal_JEBO_1996_ps.pdf
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Bibliographic Info

Paper provided by Universidad Carlos III de Madrid in its series Open Access publications from Universidad Carlos III de Madrid with number info:hdl:10016/5350.

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Length: 228 p.
Date of creation: Aug 1996
Date of revision:
Publication status: Published in Journal of Economic Behavior & Organization (1996-08) v. 30, p.213-226
Handle: RePEc:ner:carlos:info:hdl:10016/5350

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Web page: http://www.uc3m.es

Related research

Keywords: Experimental economics; Choice behavior;

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References

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  1. Shogren, Jason F. & Seung Y. Shin & Dermot J. Hayes & James B. Kliebenstein, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," American Economic Review, American Economic Association, vol. 84(1), pages 255-70, March.
  2. Franciosi, Robert & Kujal, Praveen & Deng, G. & Michelitsch, R. & Smith, V., 2000. "Fairness: Effect on Temporary and Equilibrium Prices in Posted Offer Markets," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/5355, Universidad Carlos III de Madrid.
  3. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  4. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
  5. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May.
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Citations

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Cited by:
  1. Ulrich Schmidt & Stefan Traub, 2009. "An Experimental Investigation of the Disparity Between WTA and WTP for Lotteries," Theory and Decision, Springer, vol. 66(3), pages 229-262, March.
  2. Sayman, Serdar & Onculer, Ayse, 2005. "Effects of study design characteristics on the WTA-WTP disparity: A meta analytical framework," Journal of Economic Psychology, Elsevier, vol. 26(2), pages 289-312, April.
  3. Kujal, Praveen & Smith, Vernon L., 2008. "The Endowment Effect," Handbook of Experimental Economics Results, Elsevier.
  4. Brown, Thomas C., 2005. "Loss aversion without the endowment effect, and other explanations for the WTA-WTP disparity," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 367-379, July.
  5. Grund, Christian & Martin, Johannes, 2012. "Monetary Reference Points of Managers: An Empirical Investigation of Status Quo Preferences and Social Comparisons," IZA Discussion Papers 7097, Institute for the Study of Labor (IZA).
  6. Lin, Chien-Huang & Chuang, Shih-Chieh & Kao, Danny T. & Kung, Chaang-Yung, 2006. "The role of emotions in the endowment effect," Journal of Economic Psychology, Elsevier, vol. 27(4), pages 589-597, August.
  7. H. Lorne Carmichael & W. Bentley Macleod, 2006. "Welfare Economics with Intransitive Revealed Preferences: A Theory of the Endowment Effect," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 193-218, 05.
  8. Dupont, Dominique Y., 2001. "The Endowment Effect, Status Quo Bias and Loss Aversion: Rational Alternative Explanation," Economics Series 92, Institute for Advanced Studies.
  9. Ivo Bischoff, 2008. "Endowment effect theory, prediction bias and publicly provided goods: an experimental study," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(3), pages 283-296, March.
  10. repec:ner:leuven:urn:hdl:123456789/346336 is not listed on IDEAS
  11. Lens, Inge, 2012. "Materialism, conspicious consumption and the human nature," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/347147, Katholieke Universiteit Leuven.
  12. Horowitz, John K. & McConnell, Kenneth E., 2002. "A Review of WTA/WTP Studies," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 426-447, November.
  13. Charles R. Plott & Kathryn Zeiler, 2005. "The Willingness to Pay–Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations," American Economic Review, American Economic Association, vol. 95(3), pages 530-545, June.
  14. I. Lens & M. Pandelaere & L. Warlop, 2009. "The Role of Materialism in the Endowment Effect," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 09/578, Ghent University, Faculty of Economics and Business Administration.
  15. Amitai Etzioni, 2011. "Behavioural Economics: Next Steps," Journal of Consumer Policy, Springer, vol. 34(3), pages 277-287, September.
  16. Roth, Gerrit, 2006. "Predicting the Gap between Willingness to Accept and Willingness to Pay," Munich Dissertations in Economics 4901, University of Munich, Department of Economics.
  17. Minkler, Lanse, 1999. "Legal institutions, environmental protection, and the willingness-to-accept measure of value," Ecological Economics, Elsevier, vol. 28(1), pages 99-116, January.

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