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Mistakes, Closure and Endowment Effect in Laboratory Experiments

  • Anmol Ratan

In this paper, we relax the hard closure property of experiments that have been used to study endowment effect in laboratory. We study differences in benchmark environments (hard closure) and an environment that allows participants to reverse the decisions taken in the laboratory (soft closure). We find that “endowment effect” is not observed in the soft closure treatment. The procedures in our experiment allow us to circumvent the critique of altered expectations. Our results call for a careful interpretation of experiments that suggest “endowment effect” in laboratory conditions. Other implications pertain to external validity of experiments with hard closure.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2012/2212mistakesclosureratan.pdf
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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 22-12.

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Length: 47 pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:mos:moswps:2012-22
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
Phone: +61-3-9905-2493
Fax: +61-3-9905-5476
Web page: http://www.buseco.monash.edu.au/eco/
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  1. Shlomo Benartzi & Richard H. Thaler, 1993. "Myopic Loss Aversion and the Equity Premium Puzzle," NBER Working Papers 4369, National Bureau of Economic Research, Inc.
  2. Andersen, Steffen & Ertaç, Seda & Gneezy, Uri & Hoffman , Moshe & List, John A., 2011. "Stakes Matter in Ultimatum Games," Working Papers 01-2011, Copenhagen Business School, Department of Economics.
  3. John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments 00297, The Field Experiments Website.
  4. Glenn W. Harrison & John A. List, 2004. "Field Experiments," Journal of Economic Literature, American Economic Association, vol. 42(4), pages 1009-1055, December.
  5. Dirk Engelmann & Guillaume Hollard, 2010. "Reconsidering the Effect of Market Experience on the “Endowment Effect”," Econometrica, Econometric Society, vol. 78(6), pages 2005-2019, November.
  6. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, 03.
  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.
  8. Keith M. Marzilli Ericson & Andreas Fuster, 2011. "Expectations as Endowments: Evidence on Reference-Dependent Preferences from Exchange and Valuation Experiments," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1879-1907.
  9. John List & Steven Levitt, 2007. "Viewpoint: On the generalizability of lab behaviour to the field," Artefactual Field Experiments 00001, The Field Experiments Website.
  10. repec:feb:framed:0088 is not listed on IDEAS
  11. Ori Heffetz & John A. List, 2011. "Is the Endowment Effect a Reference Effect?," NBER Working Papers 16715, National Bureau of Economic Research, Inc.
  12. Lange, Andreas & Ratan, Anmol, 2010. "Multi-dimensional reference-dependent preferences in sealed-bid auctions - How (most) laboratory experiments differ from the field," Games and Economic Behavior, Elsevier, vol. 68(2), pages 634-645, March.
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