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Salience and Experimental Tests of the Endowment Effect

Author Info

  • 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. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2013. "Salience and Consumer Choice," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 803 - 843.
  2. Ori Heffetz & John A. List, 2011. "Is the Endowment Effect a Reference Effect?," NBER Working Papers 16715, National Bureau of Economic Research, Inc.
  3. Shleifer, Andrei & Bordalo, Pedro & Gennaioli, Nicola, 2012. "Salience Theory of Choice Under Risk," Scholarly Articles 10636303, Harvard University Department of Economics.
  4. 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.
  5. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February.
  6. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. 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.
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Cited by:

  1. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, . "Salience Theory of Choice Under Risk," Working Paper 29210, Harvard University OpenScholar.
  2. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, . "Salience and Consumer Choice," Working Paper 62321, Harvard University OpenScholar.
  3. Nicola Gennaioli & Alberto Martin & Stefano Rossi, 2014. "Sovereign Default, Domestic Banks, and Financial Institutions," Journal of Finance, American Finance Association, vol. 69(2), pages 819-866, 04.
  4. Shleifer, Andrei, 2012. "Psychologists at the Gate: Review of Daniel Kahneman’s Thinking, Fast and Slow," Scholarly Articles 10735580, Harvard University Department of Economics.
  5. Keith M. Marzilli Ericson & Andreas Fuster, 2013. "The Endowment Effect," NBER Working Papers 19384, National Bureau of Economic Research, Inc.
  6. Lunn, Pete & Lunn, Mary, 2014. "A Computational Theory of Willingness to Exchange," Papers WP477, Economic and Social Research Institute (ESRI).
  7. Dertwinkel-Kalt, Markus & Köhler, Katrin, 2014. "Exchange asymmetries for bads? Experimental evidence," DICE Discussion Papers 161, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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