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The Endowment Effect and Repeated Market Trials: Is the Vickrey Auction Demand Revealing?

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  • Jack Knetsch

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  • Fang-Fang Tang

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  • Richard Thaler

    ()

Abstract

The difference between people's valuations of gains and losses has been widely observed in both single trial and repeated trial experiments, as well as in survey responses and in commonplace behavior. However, the results of some Vickrey auction experiments indicate that the disparity may decrease, or even disappear, over repeated trials. This paper reports the results of two further repeated Vickrey auction experiments that test the impact of both a second price and a ninth price auction rule on valuations. Although valuations should be independent of this variation in the exchange price rule, the manipulation had a dramatic impact on subjects' stated values of a common market good. The results suggest that the endowment effect remains robust over repeated trials, and that contrary to common understanding, the Vickrey auction may elicit differing demands dependent on the context of the valuation. Copyright Kluwer Academic Publishers 2001

Suggested Citation

  • Jack Knetsch & Fang-Fang Tang & Richard Thaler, 2001. "The Endowment Effect and Repeated Market Trials: Is the Vickrey Auction Demand Revealing?," Experimental Economics, Springer;Economic Science Association, vol. 4(3), pages 257-269, December.
  • Handle: RePEc:kap:expeco:v:4:y:2001:i:3:p:257-269 DOI: 10.1023/A:1013221421382
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    References listed on IDEAS

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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.
    2. Harless, David W., 1989. "More laboratory evidence on the disparity between willingness to pay and compensation demanded," Journal of Economic Behavior & Organization, Elsevier, vol. 11(3), pages 359-379, May.
    3. Jack L. Knetsch & J. A. Sinden, 1984. "Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value," The Quarterly Journal of Economics, Oxford University Press, vol. 99(3), pages 507-521.
    4. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    5. Vernon L. Smith, 1980. "Relevance of Laboratory Experiments to Testing Resource Allocation Theory," NBER Chapters,in: Evaluation of Econometric Models, pages 345-377 National Bureau of Economic Research, Inc.
    6. Shogren, Jason F & Hayes, Dermot J, 1997. "Resolving Differences in Willingness to Pay and Willingness to Accept: Reply," American Economic Review, American Economic Association, pages 241-244.
    7. 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.
    8. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, pages 1120-1141.
    9. Tversky, Amos & Thaler, Richard H, 1990. "Anomalies: Preference Reversals," Journal of Economic Perspectives, American Economic Association, pages 201-211.
    10. Shogren, Jason F & Hayes, Dermot J, 1997. "Resolving Differences in Willingness to Pay and Willingness to Accept: Reply," American Economic Review, American Economic Association, pages 241-244.
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    Keywords

    endowment effect; learning; Vickrey auctions;

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