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Salience and Experimental Tests of the Endowment Effect

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  • Bordalo, Pedro
  • Gennaioli, Nicola
  • Shleifer, Andrei

Abstract

We provide a novel account of experimental evidence for the endowment effect using the salience mechanism (Bordalo, Gennaioli, and Shleifer, 2011). The two-stage procedure implemented in experiments implies that the endowed good and other goods are evaluated in different contexts. We describe conditions under which the standard effect occurs, but also account for recent evidence such as a reverse endowment effect for bads and a role for reference prices in modulating the WTA-WTP gap.

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File URL: http://dash.harvard.edu/bitstream/handle/1/10636304/3156322.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 10636304.

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Date of creation: 2012
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Publication status: Published in American Economic Review
Handle: RePEc:hrv:faseco:10636304
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Find related papers by JEL classification:
  • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
  • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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  1. Shleifer, Andrei & Bordalo, Pedro & Gennaioli, Nicola, 2012. "Salience Theory of Choice Under Risk," Scholarly Articles 10636303, Harvard University Department of Economics.
  2. 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 1325-48, December.
  3. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1133-1165.
  4. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, . "Salience and Consumer Choice," Working Paper 62321, Harvard University OpenScholar.
  5. Ori Heffetz & John A. List, 2011. "Is the Endowment Effect a Reference Effect?," NBER Working Papers 16715, National Bureau of Economic Research, Inc.
  6. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 41-71.
  7. Knetsch, Jack L, 1989. "The Endowment Effect and Evidence of Nonreversible Indifference Curves," American Economic Review, American Economic Association, vol. 79(5), pages 1277-84, December.
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