Is the Endowment Effect an Expectations Effect?

Journal of the European Economic Association, Forthcoming.

39 Pages Posted: 8 Aug 2013 Last revised: 11 Oct 2013

See all articles by Ori Heffetz

Ori Heffetz

Cornell University - S.C. Johnson Graduate School of Management; The Hebrew University of Jerusalem - Department of Economics and Center for Rationality; National Bureau of Economic Research (NBER)

John A. List

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: October 10, 2013

Abstract

A hallmark result within behavioral economics is that individuals’ choices are affected by current endowments. A recent theory due to Kőszegi and Rabin (2006) explains such endowment effect with a model of expectations-based reference-dependent preferences. Departing from past work, we conduct complementary experiments to disentangle expectations — verified probabilistic beliefs held by subjects — from other features of endowment — such as “assignment” to a good — hence allowing us to compare the effect of expectations with that of other variations. While mere assignment can affect choices, we do not find a large role in the effect for Kőszegi-Rabin expectations.

Keywords: endowment effect, expectations, prospect theory, experiments

JEL Classification: C9, D11

Suggested Citation

Heffetz, Ori and List, John A., Is the Endowment Effect an Expectations Effect? (October 10, 2013). Journal of the European Economic Association, Forthcoming., Available at SSRN: https://ssrn.com/abstract=2306759 or http://dx.doi.org/10.2139/ssrn.2306759

Ori Heffetz (Contact Author)

Cornell University - S.C. Johnson Graduate School of Management ( email )

324 Sage Hall
Ithaca, NY 14853
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The Hebrew University of Jerusalem - Department of Economics and Center for Rationality

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

National Bureau of Economic Research (NBER)

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HOME PAGE: http://www.nber.org/~heffetz

John A. List

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

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