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The House Money Effect and Negative Reciprocity

In the vast majority of experiments documenting the existence of reciprocity subjects are endowed with windfall funds. In some situations such endowments might create a so-called “house money effect”. We identify two reasons why the source of endowment might matter for negative reciprocity: (1) Using earned – as opposed to windfall money – might increase the costs of negative reciprocity due to this money being in a different mental account and thus lead to less retaliation. (2) Decreasing a decision-maker’s endowment consisting of earned money might be considered a stronger violation of property rights and lead to more retaliation. We test our conjectures in an experiment and find that subjects retaliate more in both cases.

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Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 14/06.

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Length: 33 pages
Date of creation: 07 Feb 2014
Date of revision:
Handle: RePEc:cbt:econwp:14/06
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