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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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A perspective on judgment and choice: mapping bounded rationality.
Kahneman, D. (2003) · American Psychologist · doi:10.1037/0003-066x.58.9.697 · Cited by 5,540
“The accessibility of a thought is determined jointly by the characteristics of the cognitive mechanisms that produce it and by the characteristics of the stimuli and events that evoke it.”
BackgroundSelf-citationAnomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias
Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991) · Journal of Economic Perspectives · doi:10.1257/jep.5.1.193 · Cited by 5,019
Self-citationNegativity Bias, Negativity Dominance, and Contagion
Rozin, P., & Royzman, E. B. (2001) · Personality and Social Psychology Review · doi:10.1207/s15327957pspr0504_2 · Cited by 4,342
“Perhaps the most robust demonstration of loss aversion is in the endowment effect (Kahneman et al., 1990), in which the loss is framed as loss of a "pos-session" and the gain as acquisition of the same possession.”
All Frames Are Not Created Equal: A Typology and Critical Analysis of Framing Effects
Levin, I. P., Schneider, S. L., & Gaeth, G. J. (1998) · Organizational Behavior and Human Decision Processes · doi:10.1006/obhd.1998.2804 · Cited by 2,592
“Loewenstein Assigning value to a Loss frame has Replicated Kahneman et al. (1990) & Issacoffee mug greater impact and showed exaggerated effect charoff when mug ownership was (1994) attributed to good performance versus random assignment. Maheswaran & Blood cholesterol Involvement- Greater impact of loss frame for Mey…”
BackgroundInfluentialSave More Tomorrow™: Using Behavioral Economics to Increase Employee Saving
Thaler, R. H., & Benartzi, S. (2004) · Journal of Political Economy · doi:10.1086/380085 · Cited by 2,486
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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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