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Is the Endowment Effect a Reference Effect?

Author

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  • Ori Heffetz
  • John A. List

Abstract

This paper is aimed to assess, with two lab experiments, to what extent Kőszegi and Rabin's (2006) model of expectations-based reference-dependent preferences can explain Knetsch's (1989) endowment effect. Departing from past work, we design an experiment that treats the two goods (a mug and a pen) symmetrically in all but in the probabilities with which they are expected to be owned. Thus, our "endowmentless" endowment effect experiment shuts down all alternative mechanisms while leaving expectations the only difference between treatments. We find no evidence that expectations alone can reproduce any of the original effect.

Suggested Citation

  • Ori Heffetz & John A. List, 2011. "Is the Endowment Effect a Reference Effect?," NBER Working Papers 16715, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16715 Note: EEE PE
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    File URL: http://www.nber.org/papers/w16715.pdf
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    References listed on IDEAS

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    1. 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.
    2. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Econometrica, Econometric Society, vol. 72(2), pages 615-625, March.
    3. Knetsch, Jack L. & Wong, Wei-Kang, 2009. "The endowment effect and the reference state: Evidence and manipulations," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 407-413, August.
    4. 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.
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    Cited by:

    1. Pagel, Michaela, 2012. "Expectations-Based Reference-Dependent Preferences and Asset Pricing," MPRA Paper 47933, University Library of Munich, Germany.
    2. Antonio Rosato, 2016. "Selling substitute goods to loss-averse consumers: limited availability, bargains, and rip-offs," RAND Journal of Economics, RAND Corporation, vol. 47(3), pages 709-733, August.
    3. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2012. "Salience in Experimental Tests of the Endowment Effect," American Economic Review, American Economic Association, vol. 102(3), pages 47-52, May.
    4. Nicholas C. Barberis, 2013. "Thirty Years of Prospect Theory in Economics: A Review and Assessment," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 173-196, Winter.
    5. repec:kap:expeco:v:20:y:2017:i:3:d:10.1007_s10683-016-9501-4 is not listed on IDEAS
    6. Anmol Ratan, 2012. "Mistakes, Closure and Endowment Effect in Laboratory Experiments," Monash Economics Working Papers 22-12, Monash University, Department of Economics.

    More about this item

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • Q26 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Recreational Aspects of Natural Resources

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