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Endowment Effects in Bundles

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  • Dutta, Swati
  • Mukhopadhyay, Jyoti Prasad
  • Pingali, Viswanath

Abstract

Behavioral experiments conducted so far to establish existence of endowment effect as propounded by prospect theorists typically endow subjects with a single good. In this paper we depart from this setting by giving subjects initial endowment bundles which consist of two goods: chocolates and pens and directly pit neo-classical theory against prospect theory by comparing divergence between willingness to pay (WTA) and willingness to accept (WTP). Using a novel experimental setting we examine the difference in such divergence for a group that is given physical bundles as endowment vis-à-vis a group which is asked to imagine the same initial endowment bundle in their possession. We find weak evidence of endowment effect. Moreover, we examine how endowment effect of a good changes when units of the other good in initial endowment bundle change. We find no statistically significant evidence of endowment effect of a good being sensitive to the number of units of the other good in initial endowment bundle.

Suggested Citation

  • Dutta, Swati & Mukhopadhyay, Jyoti Prasad & Pingali, Viswanath, 2014. "Endowment Effects in Bundles," IIMA Working Papers WP2014-06-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    • Handle: RePEc:iim:iimawp:12888
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    References listed on IDEAS

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    1. 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, vol. 95(3), pages 530-545, June.
    2. Terrance Odean, 1998. "Are Investors Reluctant to Realize Their Losses?," Journal of Finance, American Finance Association, vol. 53(5), pages 1775-1798, October.
    3. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, March.
    4. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
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