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Is The Endowment Effect An Expectations Effect?

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  • Ori Heffetz
  • John A. List

Abstract

A hallmark result within behavioral economics is that individuals' choices are affected by current endowments. A recent theory due to Kőszegi and Rabin ( , Quarterly Journal of Economics, 121, 1133–1165) explains such endowment effect with a model of expectations-based reference-dependent preferences. Departing from past work, we conduct complementary experiments to disentangle expectations—verified probabilistic beliefs held by subjects—from other features of endowment—such as “assignment” to a good—hence allowing us to compare the effect of expectations with that of other variations. While mere assignment can affect choices, we do not find a large role in the effect for Kőszegi–Rabin expectations.

Suggested Citation

  • Ori Heffetz & John A. List, 2014. "Is The Endowment Effect An Expectations Effect?," Journal of the European Economic Association, European Economic Association, vol. 12(5), pages 1396-1422, October.
  • Handle: RePEc:bla:jeurec:v:12:y:2014:i:5:p:1396-1422
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    File URL: http://hdl.handle.net/10.1111/jeea.12084
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    References listed on IDEAS

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    1. 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.
    2. Charles R. Plott & Kathryn Zeiler, 2007. "Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?," American Economic Review, American Economic Association, vol. 97(4), pages 1449-1466, September.
    3. David Gill & Victoria Prowse, 2012. "A Structural Analysis of Disappointment Aversion in a Real Effort Competition," American Economic Review, American Economic Association, vol. 102(1), pages 469-503, February.
    4. Knetsch, Jack L. & Wong, Wei-Kang, 2009. "The endowment effect and the reference state: Evidence and manipulations," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 407-413, August.
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    Cited by:

    1. Rosato, Antonio & Tymula, Agnieszka A., 2016. "Loss Aversion and Competition in Vickrey Auctions: Money Ain't No Good," Working Papers 2016-09, University of Sydney, School of Economics.
    2. Tova Levin & Steven Levitt & John List, 2015. "A Glimpse into the World of High Capacity Givers: Experimental Evidence from a University Capital Campaign," Natural Field Experiments 00409, The Field Experiments Website.
    3. Wenner, Lukas M., 2015. "Expected prices as reference points—Theory and experiments," European Economic Review, Elsevier, vol. 75(C), pages 60-79.
    4. von Wangenheim, Jonas, 2017. "English versus Vickrey Auctions with Loss Averse Bidders," Rationality and Competition Discussion Paper Series 48, CRC TRR 190 Rationality and Competition.
    5. Brown, Thomas C. & Morrison, Mark D. & Benfield, Jacob A. & Rainbolt, Gretchen Nurse & Bell, Paul A., 2015. "Exchange asymmetry in experimental settings," Journal of Economic Behavior & Organization, Elsevier, vol. 120(C), pages 104-116.
    6. repec:oup:jeurec:v:15:y:2017:i:4:p:861-876. is not listed on IDEAS

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