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Is The Endowment Effect An Expectations Effect?

Listed author(s):
  • Ori Heffetz
  • John A. List

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.

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File URL: http://hdl.handle.net/10.1111/jeea.12084
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Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 12 (2014)
Issue (Month): 5 (October)
Pages: 1396-1422

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Handle: RePEc:bla:jeurec:v:12:y:2014:i:5:p:1396-1422
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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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