Reconsidering the Effect of Market Experience on the “Endowment Effect”
Simple exchange experiments have revealed that participants trade their endowment less frequently than standard demand theory would predict. List (2003a) ﬁnds that the most experienced dealers acting in a well-functioning market are not subject to this exchange asymmetry, suggesting that a signiﬁcant amount of market experience is required to overcome it. In order to understand this market-experience effect, we introduce a distinction between two types of uncertainty, choice uncertainty and trade uncertainty, both of which could lead to exchange asymmetry. We conjecture that trade uncertainty is most important for exchange asymmetry. To test this conjecture, we design an experiment where the two treatments impact diﬀerently on trade uncertainty, while controlling for choice uncertainty. Supporting our conjecture, we ﬁnd that "forcing" subjects to give away their endowment in a series of exchanges eliminates exchange asymmetry in a subsequent test. We discuss why markets might not provide sufficient incentives for learning to overcome exchange asymmetry.
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Volume (Year): 78 (2010)
Issue (Month): 6 (November)
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John A. List, 2003.
"Does Market Experience Eliminate Market Anomalies?,"
The Quarterly Journal of Economics,
MIT Press, vol. 118(1), pages 41-71, February.
- John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments 00297, The Field Experiments Website.
- Seidl, Christian, 2002. " Preference Reversal," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 621-55, December.
- John List, 2004.
"Neoclassical theory versus prospect theory: Evidence from the marketplace,"
Framed Field Experiments
00174, The Field Experiments Website.
- John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, 03.
- John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc.
- Jacinto Braga & Chris Starmer, 2005. "Preference Anomalies, Preference Elicitation and the Discovered Preference Hypothesis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(1), pages 55-89, 09.
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