Abstract

http://ssrn.com/abstract=940633
 
 

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Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?


Charles R. Plott


California Institute of Technology - Division of the Humanities and Social Sciences

Kathryn Zeiler


Georgetown University Law Center


American Economic Review, Vol. 97, p. 1449, September 2007
New York University, Law and Economics Research Paper No. 06-47

Abstract:     
Systematic asymmetries in exchange behavior have been widely interpreted as support for endowment effect theory, an application of prospect theory positing that loss aversion associated with ownership explains observed exchange asymmetries. We offer an alternative explanation. Specifically, we conjecture that observed asymmetries can be explained by procedure-driven theories grounded in classical preference theory. To test this alternative explanation, we alter the procedures to preserve the predictions of endowment effect theory while ruling out procedure-driven explanations grounded in classical preference theory. The data reject endowment effect theory in favor of procedure-driven theories.

Number of Pages in PDF File: 18

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Date posted: October 28, 2006 ; Last revised: April 6, 2008

Suggested Citation

Plott, Charles R. and Zeiler, Kathryn, Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?. American Economic Review, Vol. 97, p. 1449, September 2007; New York University, Law and Economics Research Paper No. 06-47. Available at SSRN: http://ssrn.com/abstract=940633

Contact Information

Charles R. Plott
California Institute of Technology - Division of the Humanities and Social Sciences ( email )
1200 East California Blvd.
337 Baxter Hall
Pasadena, CA 91125
United States
626-395-4209 (Phone)
Kathryn Zeiler (Contact Author)
Georgetown University Law Center ( email )
600 New Jersey Avenue, NW
Washington, DC 20001
United States
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