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Experimental tests of the endowment effect

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

Abstract

The discrepancy between WTA and WTP is supposed to be a manifestation of the endowment effect (KKT). The discrepancy between the average WTA-WTP disappears in the sense of statistical significance (Shogren et. at.) in settings with repeated interactions. In this paper we reexamine the KKT experimental procedures for identifying an endowment effect for consumer goods. No evidence of income or role effects is found. We show that even though the discrepancy between WTA-WTP diminishes undertrading can still persist in markets.
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Suggested Citation

  • Franciosi, Robert & Kujal, Praveen & Michelitsch, Roland & Smith, Vernon & Deng, Gang, 1996. "Experimental tests of the endowment effect," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 213-226, August.
  • Handle: RePEc:eee:jeborg:v:30:y:1996:i:2:p:213-226
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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, pages 255-270.
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    4. Shogren, Jason F. & Shin, Seung Youll & Hayes, Dermot J. & Kliebenstein, James, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," Staff General Research Papers Archive 701, Iowa State University, Department of Economics.
    5. Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, pages 643-660.
    6. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, pages 39-60.
    7. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, pages 274-279.
    8. Buhr, Brian L. & Hayes, Dermot J. & Shogren, Jason F. & Kliebenstein, James B., 1993. "Valuing Ambiguity: The Case Of Genetically Engineered Growth Enhancers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(02), December.
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    Cited by:

    1. Lunn,Pete & Lunn, Mary, 2014. "What Can I Get For It? The Relationship Between the Choice Equivalent, Willingness to Accept and Willingness to Pay," Papers WP479, Economic and Social Research Institute (ESRI).
    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, pages 289-312.
    3. Alexander Brown & Gregory Cohen, 2015. "Does anonymity affect the willingness to accept and willingness to pay gap? A generalization of Plott and Zeiler," Experimental Economics, Springer;Economic Science Association, pages 173-184.
    4. 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, pages 589-597.
    5. Alexopoulos, Theodore & Šimleša, Milija & Francis, Mélanie, 2015. "Good self, bad self: Initial success and failure moderate the endowment effect," Journal of Economic Psychology, Elsevier, pages 32-40.
    6. Ivo Bischoff, 2008. "Endowment effect theory, prediction bias and publicly provided goods: an experimental study," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 283-296.
    7. Weber, Martin & Keppe, Hans-Jurgen & Meyer-Delius, Gabriela, 2000. "The impact of endowment framing on market prices -- an experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 159-176, February.
    8. Horowitz, John K. & McConnell, Kenneth E., 2002. "A Review of WTA/WTP Studies," Journal of Environmental Economics and Management, Elsevier, pages 426-447.
    9. Lunn, Pete & Lunn, Mary, 2014. "A Computational Theory of Willingness to Exchange," Papers WP477, Economic and Social Research Institute (ESRI).
    10. Ulrich Schmidt & Stefan Traub, 2009. "An Experimental Investigation of the Disparity Between WTA and WTP for Lotteries," Theory and Decision, Springer, pages 229-262.
    11. Kujal, Praveen & Smith, Vernon L., 2008. "The Endowment Effect," Handbook of Experimental Economics Results, Elsevier.
    12. 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.
    13. 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).
    14. Brown, Thomas C. & Gregory, Robin, 1999. "Why the WTA-WTP disparity matters," Ecological Economics, Elsevier, vol. 28(3), pages 323-335, March.
    15. 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, May.
    16. Kujal, Praveen & Smith, Vernon L., 2008. "The Endowment Effect," Handbook of Experimental Economics Results, Elsevier.
    17. Dupont, Dominique Y., 2001. "The Endowment Effect, Status Quo Bias and Loss Aversion: Rational Alternative Explanation," Economics Series 92, Institute for Advanced Studies.
    18. 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.
    19. 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, pages 530-545.
    20. Diego A. Salzman & Remco C.J. Zwinkels, 2013. "Behavioural Real Estate," Tinbergen Institute Discussion Papers 13-088/IV/DSF58, Tinbergen Institute.
    21. Bischoff, Ivo, 2006. "Endowment effect theory, prediction bias and publicly provided goods – an experimental study," Finanzwissenschaftliche Arbeitspapiere 75, Justus Liebig University Giessen, Fachbereich Wirtschaftswissenschaften.
    22. Leroy, H. & Manigart, S. & Meuleman, M., 2009. "The planned decision to transfer an entrepreneurial company," Vlerick Leuven Gent Management School Working Paper Series 2009-13, Vlerick Leuven Gent Management School.
    23. Amitai Etzioni, 2011. "Behavioural Economics: Next Steps," Journal of Consumer Policy, Springer, vol. 34(3), pages 277-287, September.
    24. 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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