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Experimental Tests of the Endowment Effect and the Coase Theorem
Abstract
Contrary to theoretical expectations, measures of willingness to accept greatly exceed measures of willingness to pay. This paper reports several experiments that demonstrate that this "endowment effect" persists even in market settings with opportunities to learn. Consumption objects (e.g., coffee mugs) are randomly given to half the subjects in an experiment. Markets for the mugs are then conducted. The Coase theorem predicts that about half the mugs will trade, but observed volume is always significantly less. When markets for "induced-value" tokens are conducted, the predicted volume is observed, suggesting that transactions costs cannot explain the undertrading for consumption goods.
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“Laboratory studies have since demonstrated that humans can show loss aversion for objects such as mugs (22), money (23), and simulated investments (24, 25).”
From Thinking like a trader selectively reduces individuals' loss aversion (2009) · cites this paper as [22]
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MethodAging and decision making: a comparison between neurologically healthy elderly and young individuals
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“The theoretical idea is that an individual who owns a good anticipates a loss from the sale and, thus requires a higher payoff than the individual would pay to acquire the good if it were not owned (Kahneman et al., 1990, 1991; Knetsch, 1989; Knetsch and Sinden, 1984).”
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BackgroundRisk, Uncertainty, and Entrepreneurship: Evidence from a Lab-in-the-Field Experiment
Koudstaal, M., Sloof, R., & van Praag, M. (2015) · Management Science · doi:10.1287/mnsc.2015.2249 · Cited by 215
“Loss aversion explains the well-known endowment effect (Kahneman et al. 1990) that people value the goods and assets they own more highly than identical goods and assets they do not own.”
BackgroundExperimental Evidence on Alternative Environmental Valuation Methods
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“To focus more precisely on PT-based research, we eliminated 15 articles that did not cite Kahneman and Tversky (1979) or Tversky and Kahneman (1992).”
InfluentialLevy, J. S. (1996) · International Political Science Review · doi:10.1177/019251296017002004 · Cited by 214
“One hypothesis that emerges from the literature, however, derives from the tendency toward an instant endowment effect which applies to new acquisitions but not to new losses ( Kahneman, Knetsch and Thaler, 1990: 1342).”
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“However, our finding of an asymmetrical response to losses and gains fits with findings from a number of other domains, such as negative contrast effects in the animal conditioning literature (eg Papini et al 2001) and the endowment effect in humans (Kahnemann et al 1990).”
ResultBonus and penalty incentives contract choice by employees
Luft, J. L. (1994) · Journal of Accounting and Economics · doi:10.1016/0165-4101(94)00361-0 · Cited by 202
Why the WTA–WTP disparity matters
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Endowment Effects in Chimpanzees
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“[INSERT TABLE 3 ABOUT HERE] The results in Table 3 allow us to measure the loss aversion of the farmers by examining the ratio of the slope of the utility function in the loss domain and the slope in the gain domain (Kahneman, Knetsch and Thaler 1990; Tversky and Kahneman 1991).”
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Endowment effect in capuchin monkeys
Lakshminaryanan, V., Chen, M. K., & Santos, L. R. (2008) · Philosophical Transactions of the Royal Society B Biological Sciences · doi:10.1098/rstb.2008.0149 · Cited by 176
“In one of the most famous demonstrations of this effect, Kahneman et al. (1990) gave human participants a new object (e.g. a mug) and then offered them the chance to sell this object or trade it for an equally priced tribution of 10 to a Theme Issue ‘Neuroeconomics’. r for correspondence (…”
BackgroundInfluentialUtility from anticipation and personal equilibrium
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BackgroundInfluentialA Reference Price Theory of the Endowment Effect
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Dechezleprêtre, A., Nachtigall, D., & Venmans, F. (2018) · OECD Economics Department working papers · doi:10.1787/4819b016-en · Cited by 183
The Neurobiology of Reference-Dependent Value Computation
De Martino, B., Kumaran, D., Holt, B., & Dolan, R. J. (2009) · The Journal of Neuroscience · doi:10.1523/jneurosci.4832-08.2009 · Cited by 174
“…a seminal experiment, subjects designated as sellers accepted a minimum of $7.00 (willingness to accept as compensation or WTA) to part with a mug they had been given, whereas those designated as buyers were only willing to pay a maximum of $2.00 (willingness to pay or WTP) (Kahneman et al., 1990).”
BackgroundInfluentialDesign for forgetting: disposing of digital possessions after a breakup
Sas, C., & Whittaker, S. (2013) · Proceedings of the SIGCHI Conference on Human Factors in Computing Systems · doi:10.1145/2470654.2466241 · Cited by 182
Metadata
- Authors
- Kahneman, D., Knetsch, J. L., & Thaler, R. H.
- ORCID
- Thaler, Richard H.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1990-12
- Volume
- 98
- Issue
- 6
- Pages
- 1325-1348
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W4251252946
- Cited by
- 3,194
- References
- 0
- Citations by year
- 2026: 93 · 2025: 127 · 2024: 124 · 2023: 150 · 2022: 168 · 2021: 165 · 2020: 152 · 2019: 194 · 2018: 166 · 2017: 165 · 2016: 149 · 2015: 131 · 2014: 105 · 2013: 133 · 2012: 102
- FWCI
- 43.39
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Journal of Political Economy (publishedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Experimental Behavioral Economics Studies
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic and Environmental Valuation
- Keywords
- endowment effect, Coase theorem, willingness to accept, willingness to pay, consumer goods, transaction costs, market learning, asset markets
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