What have we learnt about Loss Aversion and Endowment Effects? Still an anomaly?
This paper presents an insight into the theoretical and empirical literature of Loss Aversion and Endowment Effect. The definition and conceptualisation of both ideas is introduced in order to define a framework for further analysis. Their presence implies a radical change in some of the basic standard postulates of microeconomic foundation. These concepts robustly predict a divergence between Willingness to Accept and Willingness to Pay, even in a perfect-market framework and invalidate the standard assumptions of transitivity and reversibility of preferences under the neoclassical theory of consumer choice. Twenty years of successive positive evidence on Loss Aversion and Endowment Effect support the theoretical implications showed in this paper. I conclude that Loss Aversion and Endowment Effects truly matter and their existence must not be taken into account just as an anomaly or puzzle, but as part of a new theory in itself, leading to new questions and challenges for future economic research.
|Date of creation:||09 Jul 2003|
|Note:||Type of Document - Acrobat PDF; prepared on PC; to print on HP A4; pages: 27 ; figures: included. 27 pages, pdf, figures included in the document|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Raymond S. Hartman & Michael J. Doane & Chi-Keung Woo, 1991. "Consumer Rationality and the Status Quo," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 141-162.
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-291, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- 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 1325-1348, December.
- Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-647, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpmi:0307005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.