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Exchange asymmetries for bads? Experimental evidence

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  • Dertwinkel-Kalt, Markus
  • Köhler, Katrin

Abstract

Whereas exchange asymmetries for goods are well known, we provide a first incentivized test of exchange asymmetries for bads (i.e., items yielding a negative utility). On the one hand, prospect theory predicts an endowment effect for goods and bads, on the other hand, attention-based theories such as salience theory predict an endowment effect for goods, but a reverse endowment effect (i.e., a particular high willingness to switch) for bads. Since both strands of research often make the same predictions concerning biased decision making, the investigation of exchange asymmetries for bads is a key element to distinguish between their validity. In our experiment, we find a strong endowment effect for bads, so that our results speak in favor of prospect theory.

Suggested Citation

  • Dertwinkel-Kalt, Markus & Köhler, Katrin, 2014. "Exchange asymmetries for bads? Experimental evidence," DICE Discussion Papers 161, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  • Handle: RePEc:zbw:dicedp:161
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    Cited by:

    1. Dertwinkel-Kalt, Markus & Köster, Mats, 2017. "Salient compromises in the newsvendor game," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 301-315.
    2. Adrian Bruhin & Maha Manai & Luis Santos-Pinto, 2018. "Risk and Rationality:The Relative Importance of Probability Weighting and Choice Set Dependence," Cahiers de Recherches Economiques du Département d'économie 18.04, Université de Lausanne, Faculté des HEC, Département d’économie.
    3. Adrian Bruhin & Maha Manai & Luis Santos-Pinto, 2019. "Risk and Rationality:The Relative Importance of Probability Weighting and Choice Set Dependence," Cahiers de Recherches Economiques du Département d'économie 19.01new, Université de Lausanne, Faculté des HEC, Département d’économie.
    4. Campbell Pryor & Amy Perfors & Piers D. L. Howe, 2018. "Reversing the endowment effect," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 13(3), pages 275-286, May.
    5. Markus Dertwinkel-Kalt & Katrin Köhler & Mirjam R. J. Lange & Tobias Wenzel, 2017. "Demand Shifts Due to Salience Effects: Experimental Evidence," Journal of the European Economic Association, European Economic Association, vol. 15(3), pages 626-653.

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    More about this item

    Keywords

    Loss Aversion; Salience Theory; Prospect Theory; Endowment Effect;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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